Many of the largest banks are offering incentives to homeowners to short sale their house. This may provide an opportunity for real estate investors.
Bank Incentives to Homeowners
CNNMoney.com is reporting that banks are offering up to $35,000 for homeowners to short sale their home.
NEW YORK (CNNMoney) — In an effort to cut their losses, banks are paying some struggling homeowners as much as $35,000 to sell their homes before they end up in foreclosure.
The deals are aimed at incentivizing homeowners who owe more on their home than it is worth and who are seriously delinquent on their payments to sell their homes in a short sale.
The banks are finally realizing that the best solution is to rip the Band-Aid off than face slow agonizing pain.
From the bank’s point of view, the offers make sense, according to Tom Kelly, a spokesman for Chase Mortgage, who would not comment on Pierce or other individual cases. “The first choice is a modification but if that’s impossible than a short sale is a faster, more efficient solution,” he said.
For the banks, foreclosure has become an increasingly difficult and expensive option. Homeowners have learned to fight the banks tooth and nail, dragging out cases for years.
And as the cases drag, expenses grow. Homeowners not only stop paying their mortgages but they stop paying property taxes and conducting normal maintenance as well. Roofs, siding, plumbing and other parts of the home deteriorate and the property loses value. By the time banks take possession, they’re out tens of thousands of dollars.
What This Could Mean for Real Estate Investors
If homeowners are incentivized to sell their homes, it could create a temporary glut of homes available for sale. As well, banks may complete the foreclosure process on more homes now that a settlement with the attorneys general has been reached. This too may put downward pressure on home prices.
Real estate investors could attempt to use this increased supply to their advantage. Interest rates are still historically low. An investor with strong income and a 25% down payment can qualify for a great mortgage on an investment home.
For many years single family homes in California did not make investment sense. Now, with prices depressed and low interest rates, an investor can by a home with a reasonable down payment and expect to get a decent cash-on-cash return. A return that is much better than the current rates of CD’s at most banks.
If you are thinking of investing in real estate and would like more information call me at (925) 385-8798.