No matter what consumers have been told in the past two years about the health of the economy and interest rates, we cannot elude the general feeling of the American people. In an unfavorable economic climate similar to the one caused after the housing market crashed in 2008 people tend to retract into their "shell" to avoid further loss. For example, before 2008 people purchased houses without a doubt that they could do little work and still see a return on that investment in two years. However, home values did the opposite and people found themselves in short sales and many in foreclosure. The housing crisis was the harbinger of one of the worst economic downturns since the stock market crash in 1929 and the only way we can get through such distress is to be patient and choose our investments wisely. Furthermore, as callous as it may sound, people can significantly benefit from short sales and foreclosures because a housing market where prices have fallen becomes a "buyer's market" and therefore an "investor's market".
Although it is simple to say, "it's an investor's market, so I am going to invest!", you must practice patience. "From patience comes knowledge and from knowledge comes wisdom", is a philosophy that I live by and should be built into an investor's brain before becoming involved with large purchases. To avoid becoming overwhelmed in a world of unknowns, one must compartmentalize and establish priorities starting with establishing a budget.
The budget for demonstration purposes is $150,000. To many people, this is a large sum of money that seems to have no limit on what one could do with it. However, in a healthy economy this amount of money would get someone no more than a two bedroom and one bathroom house in a less than desirable neighborhood. Fortunately, I have the advantage of a growing selection of decent homes in foreclosure. Before moving on however, I must establish the reason of purchasing a house that has been foreclosed on. The primary reason is that foreclosures in a bad economic climate can very well be well kept homes in great neighborhoods that were seized by the bank because the previous owners could not keep up with the mortgage payments. A well kept foreclosure is the ideal situation for me, as an investor, because it means I will have to do little work structurally and I can focus on updating. Making a home aesthetically pleasing is both easier and less expensive which will provide me the highest return on my investment.
After choosing the type of investment, an investor must decide what the investment will become. In this case, my $150,000 investment is best spent on a foreclosed home that will...