Seeking Foreclosure Riches: What Does it All Mean?

One of the ingredients for "bubbles" is the quest for the home run. Investors look to how much they wish to gain rather than to risk and reward.

What happens when this quest intersects with a major downturn in an asset class?

The Foreclosure Boom: Donald Trump

Our local papers have featured ads from Donald Trump, explaining how you can profit from the foreclosure explosion. This article, while a few months old, is typical of what is happening. It is from Seattle, a pretty strong housing area which we visit four times a year for board meetings.

But not to fear, capitalists, because one man's misery is another man's meat. In the same issue of the P-I Trump University", a class where Trump promises "If you're not a millionaire by December 2008, you didn't attend my foreclosure workshop." Yes, that's right. Your struggling neighbors who are losing their homes in the subprime fiasco, are easy prey. The ad enthuses that "Foreclosures soared 94% in 2007!" What a paradise for the entrepreneur. The ad features a full-length Trump (who won't actually be at the seminar, by the way) staring you down, challenging you to become as rapacious, amoral, and loathsome as he is. If you don't have the guts to let Donald make your rich at the expense of the suckers of Pottersville, well, you're fired!

The LA Times also reports on the Trump approach:

An ad in this very newspaper showed a picture of The Donald and quoted him as saying, "Investors nationwide are making millions in foreclosures . . . and so can you!

"I'm going to give you 2 hours of access to one of my amazing instructors AND priceless information . . . all for FREE."

OK, I know what you're thinking. You're thinking there has to be a catch, such as the fact that the ad doesn't mention anywhere that the free two-hour seminar is only a "preview" of the three-day workshops that Trump offers for $1,495.

The reporters are skeptical of the Trump seminars, but we are offering no opinion. We merely suggest this information as an interesting piece of information about identifying market bottoms and investor behavior.

Books on Foreclosures

There were a number of books on foreclosures in the last real estate bust, and now we see some new ones and also some revisions.

• Foreclosure Investing for Dummies is a year old now, so not a good bottom call. Nonetheless, we are always interested when dummies get into the game.
• Here is one that came out in April.
• This "insider's guide" is almost a year old.
• This "complete guide" came out in January.
• If you want something that no one else knows, and only a couple of months old, this is your choice.
• And finally, here is something for "dummies" who want to fight foreclosure -- with or without help from Barney Frank and Congress!

What Does it All Mean?

We do not know! When will the wave of foreclosure buyers intersect with the foreclosure sales? Perhaps we need to wait for the cover of a major magazine before we have a clear contrarian signal.

While we are confident of the knowledge base of our regular readers, let us make it clear that we are neither endorsing the foreclosure course nor the books cited. It is information for investors to consider -- that is all.

Comments

[deaverb]

A better time to be buying rather than selling. One more of those points such as in 1975, 1982, 1990. No more complicated than that, but always hard to pull the trigger when going against the norm--and there we all are (me too!).

[JohnE]

With us baby boomers at the foothills of our overly publicised retirement "bubble" some writters have visions of us dying, moving into nursing homes, even downsizing or selling off vacation property and such. The consequence is less housing demand for a couple of decades. So, if one half believes this, is it a good time to buy homes for profit, or a better time to choose the sure thing and sell books and courses to the greedy? It reminds me of those who made fortunes selling supplies to the new miners during Americas gold rush era.

[gmm95219]

I bought a house in stockton in 2005 for half a million dollars. Now it is worth $ 300000. I am letting it foreclosed. Although I can afford the higher payments.
I am renting a similar house for $ 1500 a month for three years and will buy my old foreclosed or similar house for $ 200000 in 2010.
Who is the loser? My credit may be damaged for three years but it is worth moving into my own house for $ 200000 in 2010.
Who is the loser?
you guessed it ?
I do not see why every body in my situation does not do it and let the muti billion dollars mortgage companies suffer the consequenses.
GMM

[worthy]

"rapacious, amoral, and loathsome", are terrific words to describe the
"Donald". I don't know when real estate will bottom, but my guess is that Mr. Trump hasn't got a clue either. How can anyone so self-absorbed learn enough to predict anything? Perhaps going contrary to Trump would work?

[Tom Lindmark]

For the first time in several years you can buy single family homes for investment and expect to generate a positive cash flow. If you are buying in a market with decent growth fundamentals you can expect very acceptable returns over the medium term. Just don't go into the market unless you plan to hold for 5 to 10 years. You won't see another bubble for some time.

[curious cat]

gmm, if housing prices do not fall as far as you think, you are the loser. so, make sure you convince as many people as you can to join you in abandoning ship. oh, yeah, it is possible that after you buy it for two hundred thousand, it will fall to one fifty, so maybe you better wait till 2011. good luck.

[cfish]

GMM: do you really think you'll get a another home loan in 3 years after the foreclosure that made the lender lose 200k?

So, the dumb money is chasing real estate, foreclosure or not. I think I'll keep renting until these dumb money runs dry, thank you very much.

The house i'm renting lost over 30k in one month on zillow and it needs to lose another 100k for the rent to break even.

[gordon]

Resets don't peak until Sept-Oct this year, with 2009 similar to current levels, making it hard to be optomistic. Last weeks consumer spending showed a big jump in credit debt, all of it on necessities, not durables/descretionary...
gmm: you probably did the right thing assuming you'll have substantial down payment to qualify when the time comes, late next year will probably be 6 months ahead of a turnaround in 2010.
According to Moe Ansari (one of the best)radio show's guest last week, (marketwrapwithmoe.com... of 401K owners, 36% have $10K or less to retire on, another 25% have $50K or less, and his guest estimated $150K will be needed according to Boomer's life expectancies, while myself and others here may have planned, the majority or in deep "S", especially if home equity is their only savings.

[Chuck123]

Foreclosures come in stages 1, 2, and 3 and we are not 1/2 way done with stage 1. Stage 2 is from speculators that bought foreclosures from round 1, and round 3 comes from speculators who bought from round 1 or 2 looking for big fortunes. I wouldn't rush at foreclosures they are always good deals from individuals that must transfer or divorce due to unforeseen circumstances causing immediate sale. Remember when you buy a foreclosure (as is) your at risk of other underlying problems, if you buy otherwise you will at least have a sellers disclosure for legal ramifications. The economy (jobs) so weak and government so corrupt that I would take the wait and see approach for now, people chasing fortunes on foreclosures end up in foreclosure themselves. Patience is a virtue.

[Tom Lindmark]

When you buy real estate with a contract that states it is being sold "as is" you do not forfeit your right to do a thorough property inspection and to subsequently renegotiate the purchase price based upon your due dilligence. See this article for a full explanation- blog.metro-real-estate...

[gordon]

I agree Chuck- the best deals are distressed divorces, it will be widespread, drive the best neighborhood looking for the neglected houses, not necessarily the vacant ones, forge a relationship w/ the best real estate expert in the area. (that's how I found my 1st house, $36,300, the couple walked out on each other, leaving most everything in the house) If you can make an offer before everyone knows about it, that's best. All the foreclosures are already known by agents, insiders at banks, the pros usually get the deals.

[loan Doctor]

gmm, so what do you do when the bank comes after you for the difference on what they sell your house for and what you owed? File BK ? Good luck getting a loan with a FC followed by BK showing the balance of a previous FC being listed in the liabilities. Automatic turndown, even 2 years ago in the height of subprime. Hope you save 30% and can deal with a hard money loan at 14-16% interest. Even better, hope you do not need any other form of credit.

[Dilbert]

gmm, you must be a democrat, right?

[The Mick]

I have been looking for a second home (vacation type) I believe the prices are still inflated, owners looking to make a big profit. A closer look indicates a slight easing of the prices, especially when owners are willing to come off the asking price with little or no pressure. However I believe the we are still 18 to 24 months away from the real low. Take a business approach rather than emotional, and you'll be much further ahead. It's always worked for me.

[PROFIT INCHAOS]

IT IS INTERESTING TO WATCH VARIED THOUGHTS. I MADE A FORTUNE IN THE MADNESS OF THE 1980S. YOU COULD BUY ANYTHING FOR JUST ABOUT ANY PRICE. IT WAS ACTUALLY BETTER BEFORE THE FORECLOSURE, AS EVERYONE WAS WANTING TO DUMP, AND THERE WERE FEW BUYERS WILLING TO BELLY UP TO THE BAR. PEOPLE WOULD PAY BIG BUCKS FOR SOMEONE TO ASSUME THE DEBT. THINGS ARE SO MUCH DIFFERENT THIS TIME AROUND. THERE ARE MANY TO BE HURT IN THIS MESS, AND THE LOOKERS THINKING THEY CAN CALL THE BOTTOM MAY ALSO BE HURT. THERE ARE SOME DEALS AT HALF PRICE TODAY, AND POSSIBLY A BARGAIN. ON THE OTHER HAND, PRICES WERE INFLATED BY TWICE IN SOME AREAS, SO MAY IT IS NOT SUCH A GOOD DEAL. IF YOU GO BACK TO WHERE VALUATIONS IN THE MID 1990S, AND THEN APPLY A REASONABLE INFLATION FACTOR, SUCH AS THE CPI INDEX (ALBEIT QUESTIONABLE AFTER THE GOVERNMENT JUGGLES THE BOOKS) AND USE THAT INFLATION RATE AS A BENCHMARK VALUE, THE VALUE FROM THIS METHOD IS NEAR A REAL VALUE. THE DIFFERENCE BETWEEN THIS VALUE AND THE SO-CALLED MARKET VALUE OF HOT AREAS WAS NOTHING MORE THAN FLUFF, AND THAT NEEDS TO EVAPORATE IN ORDER TO REACH A REALISTIC VALUE. AREAS THAT DID NOT OVER INFLATE, WITH VALUES THAT WENT UP ALONG THE LINES OF ACTUAL INFLATION, HAVE NOT SEEN BIG PRICE DROPS ACCORDINGLY. THERE ARE ALWAYS DEALS. I HAVE BOUGHT WELL OVER $100 MILLION FOR MY PERSONAL PORTFOLIO OVER THE PAST THRITY YEARS, AND DEALS ARE ALWAYS THERE. THIS TIME, HOWEVER, IT WILL TAKE MANY YEARS BEFORE THE MARKET GETS BACK ON ITS FEET. I AM STAYING OUT OF THE WAY THIS TIME AROUND. THERE ARE TOO MANY VARIABLES. INFLATION MAY STEP IN AND CARRY VALUES THROUGH THE ROOF AT SOME POINT, ALTHOUGH THE CORRESPONDING DEVALUATION OF THE DOLLAR MAY SUCK OUT ALL ACTUAL GAINS.

[johngonole]

Trump makes his money selling bad assets from his private business to his public businesses that go broke screwing the shareholders.

[johngonole]

profit in chaos i agree that prices need to come down more especially assuming that going forward we seem to be fighting deflation, demographics, slowing economy, high personal debts, low savings rate, inflation while it may lead to increase in home prices does it really lead to affordability for the avg buyer. So one can place a bet and leverage and hope inflation makes them money. Will be hard to make money otherwise at these prices