DEAN GRAZIOSI: DEAN GRAZIOSI REAL ESTATE

Foreclosures, falling home prices and extremely low interest rates may make purchasing a home in 2009 particularly appealing.  While it is true that it is definitely a buyers market, and there are deals in every neighborhood, there are also numerous dangers associated with real estate investing in a slow economy.

Perhaps the most important thing to keep in mind if you are thinking of purchasing real estate this year is that now is not the time to attempt quick real estate flips.  While it can be done, unless you are a professional investor with years of experience, you could find yourself in a big mess very quickly.  If you are going to invest in real estate to make money this year, it may be wiser to invest in rental properties.  Buyers should plan on holding onto their property for a number of years.  It is the safest way to invest in real estate in a down market. 

Secondly, it is imperative that you don’t just buy a property because it is cheap.  There are millions of cheap homes all over the country, however, only a portion of them are good buys.  You should treat foreclosures like any other real estate transaction.  Research the neighborhood, the current market value of the homes in the area, and definitely the home itself.   Many people make the mistake of purchasing a foreclosure blindly, in other words, without seeing it in person.  Unfortunately, thousands of homeowners find that once they purchase a distressed or foreclosed property, they will have to put thousands of dollars into repairs to make it habitable.  Some buyers even find that they are financially sunk. 

Before you jump into any real estate transaction, make sure you understand your local market.  You can protect your investment by doing your research ahead of time.  Believe it or not, there are many areas of the country that have rising home prices.  The housing outlook as a whole may be grim, but your local market may be doing well so find out the facts. 

Lastly, don’t stretch yourself too thin financially.  The economy is not expected to turn around in 2009, so if you are going to purchase real estate, make sure you can afford it now, while times are tough.  After all, times may actually get tougher before it gets better. 

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Investors cannot approach their rehab properties the same way they could a few years back.  Times have changed, at least in the short-term, and in order to thrive in 2009 you will have to be smart and play your cards right. In other words, forget the luxuries and fix the basics as cheaply as possible.  In today’s real estate market, putting tens of thousands of dollars into renovations will not get you thousands more in your asking price. 

In a market where foreclosures and distressed properties are at an all-time high, investors need to realize that they are competing with very low cost properties.  There are more buyers looking for a great deal than there are buyers looking for luxury homes.  Homes are selling for much less than just a few years ago, so investing a ton of money into a property will not get you a better asking price, at least not this year, or the next.  Granite countertops and stainless steel appliances used to guarantee a great sale.  Unfortunately, those times have changed.  Consumers are overwhelmed with debt and consumer confidence is extremely low.  Buyers are looking for the lowest price, period. 

If you have purchased a rehab property and want to sell it quickly, the key is to improve wisely.  You can give the kitchen a makeover with a new faucet, by staining or painting cabinetry and by changing the cabinet hardware.  A new tile floor can be installed rather cheaply if you don’t overindulge.  When it comes to kitchens, you may want to stay away from properties that need a complete renovation.  But if you must make improvements or start from scratch, just stay away from marble, granite and other luxury materials.  That is of course, unless you get them dirt cheap or free. 

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On October 2^nd of 2008 the Senate approved the largest bailout ever in the history of the world. With more than 25% of lenders in jeopardy the government stepped in to “save” the financial industry and home-buying markets.  On December 1^st, 2008, the foreclosure rates hit an all-time high and many homeowners were already too far behind on their payments to stop proceedings. 

The question on everyone’s mind is, “Where did all the bailout money go?”. Out of all the banks and lenders receiving aid from the bailout package, only 5% are passing the money on to the consumers directly. With the amount of money the government has injected into the big banks we could easily pay the next 4 months of delinquent home loans and allow the people to loosen their spending to stimulate the economy.

The Bush administration would be hard-pressed to find anyone not affected by the current home-buying market. With so many people losing their homes and having to regress to renting, the demand for rental properties has increased. Renters have noticed the change too. For example, in San Diego county, California, the average cost of renting a two-bedroom apartment has increased over $200 per month since the bailout was approved.  People who previously thought they wouldn’t have to pay for the home-buying market crash are now having to foot the bill with the people who could not keep up with their home loan payments.

With the 2008 holiday buying season over and no end in sight we must ask ourselves a few questions. Have we seen any ease of the foreclosure rates?  Has home-buying taken a turn for the better? Will the banks ever pass down the bailout to the consumers in any way? Would it have been better to let the market crash completely? How can we finally restore confidence in the banks and government that have been throwing our money at the problem to no avail?

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