The foreclosure market appears to be expanding with no signs of relief. The combination of overextended sub-prime mortgage holders and an ominous economic slowdown indicate that this is a trend that is likely to continue for at least the next year. With all the negative news in the wind, should you venture into foreclosures now or wait for the bottom of the market to hit?

Foreclosures continue to make the headlines across America. DataQuick foreclosure statistics showed the pace slowed slightly, with September foreclosures reduced 8% from 243,000 in August. The reason so many people are writing and talking about the numbers is because they are more than double the pace of t2006 - with all indications that there are still many more to come.

Many people think of foreclosure investors as being "bottom feeders" or parasites - taking advantage of the misfortunes of others. Others view them as being a necessary evil - or safety net that will help to adjust the market price and stabilize the real estate market. Whatever you think, someone must buy these properties. Just as "vultures" have their place in the natural ecosystem; so too foreclosure investors have a place in bringing some sanity and stability back into a real estate market that had become a feeding frenzy of over extended buyers driving ever higher prices in already over heated markets.

It appears that the expected recovery will consist of three stages.

1. The mortgage credit industry needs to clean up their act and stop making loans that will likely result in defaults. This is already well under way.

2. The non-performing loans need to get resolved - if this means foreclosures then the sooner this process is completed the sooner we can see signs of recovery. There appear to be several more months of this phase.

3. Foreclosure investors may be able to get bargains and then rent or re-sell the properties at market prices that fit the credit profile of the new owners, thus, stabilizing the market. This also appears to be in the early stages so there should be more opportunities for profit in the next several months.

How much will the prices come down & are there really any bargains?

We have been studying data from several regions of the country. Data Quick and RealtyTrac are two main sources of this data. In our unscientific study we found that the discounts on distressed properties are currently in a range from as low as 15% in Hawaii to over 40% in a few markets (AL,OH,PA) with an average of 20 - 25% across the board. Of course this raises two more pressing questions. How much farther will prices drop before they reach the bottom? The answer is, of course, nobody knows for sure, however, most experts are telling us that they believe the bottom will be 7% - 17% lower than today's market prices. This is where you must use your best judgment in each market place and realize that there are differences between neighborhoods even in your area. The second question is a natural. How do you find bargains in your area?

How to Find a Bargain

To locate foreclosures in your area, RealtyTrac is a good place to start. Their website lists foreclosures by ZIP code and foreclosure stage, ranging from pre-foreclosure property to bank-owned real estate. RealtyTrac is a web based service which provides you with the basic information you will need to locate distressed properties.

Many I've spoken with report that they find RealtyTrac data not to be totally accurate. Let's face it the task of keeping up to date is enormous and the information entered on county records is not always correct. With the huge numbers of new defaults mounting it makes the job nearly impossible. Even so, you can use this service to locate potential deals. RealtyTrac charges you $49.95 per month for their updates and they allow you a free test drive for seven days.

More Sources of Bargains

REO's Bank Owned Properties.

Banks and mortgage lenders are not really in the Real Estate investing business. In fact they are really in the lending business and they want to collect interest on loans and the fees they get for servicing and so forth. But, they must deal with the large number of defaulting loans. Unfortunately for banks, many are not permitted to keep these non-performing assets on their books. This creates opportunities for investors to buy the banks' problem properties. But, buyer beware; do your homework and make sure that you understand you will be buying "As Is" unless you manage to get the bank to fix the property before you take it over. You may find properties for sale on the banks' own Web sites: Bank of America, Countrywide and U. S. Bank each have some. We've found over 200 listings in California alone priced under $200,000. Carefully selected properties can create some nice equity and upside for savvy investors.

Local real estate agents and brokers.

Often, the best source of information and access to buying and selling property in any area of the country is the local Realtor. All good agents have refined their network over time so that thy will know about what is coming on the market before you may be able to find out. If you develop a few good contacts, they can act as your eyes and ears to find the best deals.

Auctions.

Auctions are increasing in popularity. As banks and others pile up unwanted real estate holdings they may wish to "unload" their bigger problems in a bulk method such as an auction or portfolio sale. A real estate auction specialist may sell dozens, perhaps even hundreds of properties which cover a broad geographic area. You can find auctions listed in the newspaper or find auction houses in the yellow pages. Just be double sure to do your homework as this is not a short cut to good deals. If you do not have experience or expert guidance you will probably have some expensive lessons in this arena. There are many very sophisticated and financially capable players who play hardball with auction properties.

Foreclosure Servicing Companies.

Although banks may sell their "REO" (Real Estate Owned) directly to an investor some will hire companies who specialize in distressed properties to take care of the details and hassles of marketing these properties. You can find them by looking in the local telephone book or by speaking with some Realtors in your area to find out who provides this service in your area. Title companies and Escrow agents usually know of these services as well and may introduce you.

Government and government-backed lender property sales.

Government agencies ranging from FHA and VA to HUD including the Department of Justice (i.e. drug related seized homes) sell real estate, you may find these online as well. Fannie Mae and Freddie Mac also operate information websites. Due diligence is the key to smart investing here but, you may find that in general, Fannie Mae tends to list more main-street real estate values.

Build Wealth in Real Estate by Being Patient and Educated.

Although foreclosure properties often sell at a healthy discount, you will often find that these properties have many problems. After all ,the people who lived in them usually go through pretty hard times leading up to losing their property. As a result, many will have neglected the repairs and maintenance. In many cases, they will have also really trashed the property on their way out, tearing up the interior, even taking many appliances and fixtures that will need to be replaced to make these houses habitable. You should also take into account the general trend of foreclosures in the immediate area may have an adverse effect on your ability to rent or re-sell for a profit; also causing the process to take longer. Be sure to check on comparable listings and the most recent sales in the area to see what the trends may be.

The Bottom Line.

Look for properties that are going to keep their current value and which have the best chance to increase in value. If you buy nice properties in nice neighborhoods this will help you to get the most out of your investment. Location, timing and market trend are still important even if you are buying well below the perceived market value. When it comes time to re-sell you want to be sure you have invested in an appreciating asset which is in demand in your local market place.

If you want access to some more information or analysis tools feel free to contact the author.