Investment Opportunities Come with Problems

Houston’s real estate market today presents some very unique opportunities……and some problems, but if you were able to read the market you’re probably doing just fine.

Foreclosures, short sales and high inventories are just some of the investor’s delights.  High inventory usually means lower prices.  Couple that with the foreclosures and short sales and there is an assortment of homes from which an investor can choose.

That is – If that investor gets there first before the swarm of new “would-be” investors that have sprung up on the market and those “…buy decrepit homes” companies.  For every foreclosure home on the market there is an average of 4.1 offers, with some I have seen having as high as 15 offers before the listing Realtor “pulls the plug”.

Additionally, financing is difficult to come by.  A recent visit with mortgage banker revealed that he had only closed one loan for a self-employed individual in the past 4 months.  Whereas most investors are in business for themselves, loans are more difficult to come by and investors find themselves having to trade their 1099 income statements for W-2 statements by “paying themselves”  and writing off their “employee” as a business expense on their tax returns.   Additionally, banks have cut back on the amount of investment loans an individual can carry at one time.

What does this mean for the investors?  To paraphrase:  “Cash is King”.  When a bank receives an FHA loan offer of $100k on a $100k home, the $98,000 cash offer may very well be the one chosen.  Banks can be choosy too, now.  With 4.1 offers per home, chances are one will be a cash one with quick closing. With loans taking up to 45 days to close now, that month and a half on a $100,000 loan could be worth over $1,000 to the bank and the risk of a non-qualification of the home or buyer is more than worth a grand.

Houston currently has had 5900 foreclosure sales since May 1, 2009 with an inventory of almost 3100 foreclosure listings (almost half of those are pending sale)  (data from Houston HAR MLS system). Almost 29% of those were cash sales.


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