How Do Discount Home Buyers Find Investors?

As Warren Buffet so delicately put, "Wide diversification is only required when investors do not understand what they are doing".

If we had the ability to take a time-machine back to 2004 through 2006, who'd have said that as of August 2009 a total of 474 lending institutions would be out of business? Industry leaders such as Indy-Mac, Accredited Home Lenders and Wachovia wholesale division (among countless others), have shut their doors, refusing to finance mortgages with the whole real estate "bubble" bursting over and over again. With top economists predicting that there are going to be 2.5 to 6 million foreclosures just this year alone, many investors are aware that the low hanging fruit is ready to be picked. Those untrained investors are still running for the hills, many times leaving their wife and children behind (metaphorically speaking).

In July 2008, a total of 39,507 new and resale houses and condos were sold statewide in California. That was up 12.2 percent from 35,202 in June and up 12.3 percent from 35,185 for July last year. The median price paid for a home last month was $318,000, down 3.0 percent from $328,000 for the month before, and down 33.5 percent from $478,000 for July a year ago. Half of the forecasted drop came from the depreciating marketplace, the other half due to shifts in the types of homes being sold as well as the availability of mortgages.

What does this tell you? While certain groups would like to take credit for half of these sales, the truth is that of the homes sold in June, 44.8 percent were foreclosure re-sales, up from a revised 42.5 percent in June and 7.6 percent in July a year ago.

Warren Buffet may actually be right in what he stated above...

Held within this charred and dilapidated land, where real estate profits for many appear unlikely, there is a tried and true real-estate foreclosure company which consistently teaches its clients how to purchase real estate at tremendously low LTVs (loan to value), usually between 40-60 cents on the dollar of current market values.

Experienced real-estate investment companies that has been purchasing homes throughout the last two down cycles really haven't diversified into other facets of investing, they have become the pros in not only purchasing real estate "right" but doing so in both an up and down market. It takes great skill and proficiency to purchase hundreds of properties per year. Thanks to their growing base of investment capital, many real estate investment groups are lodged within the real-estate owned (REO or bank owned) market, and could be considered the experts on short sales acquisitions (creating massive profits on over-leveraged properties) and has a base of real-estate agents who feed them properties the banks no longer want to hold within their portfolios.

So what could this mean for you as a hopeful private lender?

First, depending on the structure of the deal, a minimum of 10 to 15% (annualized) return on investment is realized on the private investor's funds. With certain criteria yielding an annualized 15 to 18% return on investment (ROI), the private financier is guaranteed security by the following criteria being met:

1. Funds are held in escrow until a property (or properties) fits the correct criteria

2. No property is bought that is over 65% LTV based off of conservative appraised values

3. Many properties are sold within a few days from being purchased. On these scenarios 2-3 points are realized instead of the annualized returns due to the speed the property is bought and re-sold. Many of their investors are receiving 15% return on investment per month, all secured by a Trust Deed against the property in question.

4. Multiple exit strategies (a total of six) are placed into the evaluation process and returns are based off of short as well as long term strategies. Those who are successful understand that success doesn't come to you, you go to it. Certain seasoned investors are prepared for this new opportunity and is geared to take their education, experiences and home-buying skills into the Southern California marketplace and will become "THE GO TO" property buying force for Asset Managers, Real-estate Agents and Sellers.

Don't be one who seldom sees an opportunity until it ceases to be one.

To your success.