Want To Invest In Foreclosures? Why This Is Not Where You Make Your Millions

Simple Reasons Why Foreclosure Investments Are a Bad Idea
There are some people who are convinced that investing in foreclosures is the way to go; that this is the way they are going to make the millions that they dream of. I would gently disabuse people of this mistaken notion. Foreclosure investments are neither as common nor as simple as people believe them to be. For a number of reasons foreclosure investments are not advisable. In this economic climate, the idea of making big money off of foreclosures is going to remain a pipe dream mostly. I explain why here.

What are foreclosures and when do they happen?

Simply put, foreclosures happen when a person is unable to make payments on a property loan they have taken. In such a situation, the bank or financial institution, who is the lender /mortgagee in this case, will ‘foreclose’ the property. They will auction off the property to recover their dues. Theoretically, it makes sense to invest in such foreclosures because banks and other lenders basically want to sell off and get the property off their hands. They don’t want to be stuck with a non-liquid asset that they cannot lend or otherwise monetize, so you can buy cheap.
But think about it – when does a foreclosure actually happen? Well, first the borrower or mortgagor defaults on their payments. Then the lender sends notices and then proceeds with the foreclosure – a process that will typically take months. In the meanwhile the property owner has other options – especially now when it is more or less a seller’s market. Our recent experience has been that in a lot of markets, people receive multiple, excellent offers as soon as they put a property up for sale.
So why would any homeowner let it get to the foreclosure stage when they have other, better options? In the past, when times were tough, banks were foreclosing thousands of properties. So during the 2008 recession and for years after that, this would have made sense. However, it doesn’t anymore, particularly now in these COVID times as I explain in this short video. And that is why I say that right now foreclosure investments remain a bit of a pipe dream.

Still thinking about foreclosure investments? You must be brave!

Why brave? Because buying foreclosures is a lot more complicated than it seems. If you decide to bid for a property that is undergoing foreclosure or intervene in a suit, there is a lot you would have to check – are the property titles clear? Is there some other lien or pledge on the property or IRS issue? Foreclosure investments need significant expertise and experience. Plus in my experience, parties sometimes collude with each other as well. I have seen people being financially destroyed as a result of this.
For all of these and other reasons, I advise people against investing in foreclosures. There are other sounder, better investment opportunities out there for you. Get in touch with us to know more.

How to Buy More than Ten Homes and Get Financing for Them

Why the Limit of 10 Fannie Mae Loans Does Not Matter          
Everyone who is familiar with me and the work I do knows that I have personally bought hundreds of homes by way of investments for myself. However, there is one question I get a lot from my clients and those who attend our real estate seminars. Can we get more than ten loans? If so, how? These questions are of course related to the Qualified Mortgages or Fannie Mae loans as we colloquially call them.

Buy more, I tell them.

I always advise our clients to buy more homes – 5, 10, 50 or 100 – as many as they possibly can. Because the more homes they buy, the greater passive income they generate and the more their wealth grows. I give the example of myself as someone who bought many, many homes as part of my own investment portfolio. So how did you manage to buy so many homes when one individual can get only 10 loans,” they ask me.
Now there is no doubt that the 30-year fixed rate loan is a gift that no one can or should refuse to take. However, the ceiling of just 10 loans for each individual – which includes the homes one stays in, by the way – is a bit of a dampener, isn’t it? You could say that it is. So what are your options?

How to get more than ten loans.

The first thing to remember is that it is ten loans per individual, so married couples can get up to 20 loans between them. If both spouses are earning, they are seen as a bankable risk and financial institutions can advance up to 20 loans. So that right there is one family’s increased capacity to create future wealth for itself.
And then there are the non-QM loans or the non-qualified mortgage loans. Sure, the terms of those loans may not be as favorable as the Fannie Mae loans but these are good loans to take. It is, in fact, possible to get these loans that are repayable over a 30-year period and at a fixed rate! The rate may be a little higher but this is still a great option! Watch this episode to know why I think the ten loan limit is irrelevant, and creating retirement riches is within everyone’s reach. 

What Warren Buffett Said About the 30-Year Loan, and Why I Agree

I think that we would all agree that if Warren Buffett gives financial advice, it is going to be worth listening to. He has been one of the richest men in the world for many years now, and his unconventional financial wisdom means that he is widely considered to be the most successful investor of the 20th century. So, without doubt, it feels great to have one of my ideas validated by Warren Buffett himself. Watch this to know which one. 

Warren Buffett and the 30-year loan.

In a very recent article by Maurie Backman titled Warren Buffett’s 5 Best Pieces of Money Advice, Buffett said that he is a big fan of financing a home with a 30-year mortgage, especially when rates are low. 
“When you take out a long-term loan, you buy yourself flexibility by not locking yourself into the higher payments that come with a shorter-term loan.”
According to him, with interest rates as low as 2% it is a no brainer that people should finance their real estate purchase using this instrument. This low rate spread out over a 30-year period makes it an incredibly attractive option. And guess what? I agree!
I’ve been advising my clients and viewers on the same lines.
I had engaged in some personal correspondence with Warren Buffett sometime in 2012. This was after the recession, and at the time he had written to me that he was interested in buying 70,000 to 100,000 homes for Berkshire. He told me that he wanted to get a 30-year loan to finance each of the homes he bought. In his view, with only a 20% down-payment requirement, it really didn’t get any better! No wonder the 30-year loan recommendation happens to be one of his top five financial tips.

Why I recommend 

the 30-year loan.

I have myself relied on the 30-year loan to invest in real estate over the years, and it has worked really well for me. I advise my clients to do the same because I believe it is a gift that no American should refuse – and it has worked really well for them as well. Believe me, foreigners can hardly believe that such a long term, fixed rate loan is actually available to Americans!
The reasons why I – and world famous experts like Buffett – recommend this loan are easy to understand. With low interest rates and fixed repayment amounts spread out over 30 years, this loan becomes easier and easier to repay. Inflation and rising cost of living do not impact the amount you pay each month; it remains the same. So at the end of say 10 or 15 years, the amount you’re paying each month seems to be little more than a fancy dinner somewhere!
Now there is a catch of course. Warren Buffett wanted to finance thousands of homes with the 30-year loan, but there is a limit to how many loans you can take out. Each individual can take out no more than 10 of these loans. A married couple can get 20 loans between them. So how do you buy more homes as I advise you to do? There is a way. This is also one of the topics we will talk about at our next online Property Expo, and you are most welcome to attend.