Considering buying or flipping a U.S. foreclosure property?

With U.S. home prices declining many people are considering buying foreclosure properties in the U.S.  Foreclosure properties in some states are selling for $1.00 to $1,000.00, but before you jump on the band wagon thinking you are getting a great deal, what are the things you may want to know….

Ghost Towns – Some neighborhoods have so many foreclosures that they are becoming “ghost towns”.   The problem with purchasing a foreclosure in a “ghost town” is that the neighborhood may or may not come back to life when the economy eventually gets better.  A lot of homes in these “ghost town” neighborhoods are being torn down because no one wants to purchase the homes and the neighborhoods are attracting vandals and crime.

Flipping – With attractive prices many people are thinking they can fix up these cheap foreclosures and flip them for profit.  Some of these flippers are also learning the hard way.  The house may have unforeseen problems that cost more to fix than planned, thieves may break in and strip out everything once you are done renovating and/or the house may take longer to sell than planned or may not sell at all.

Consider employment levels – Cities whose economies are not diverse enough or depend on one or two industries as a means of revenue/support have been especially hard hit. For instance, with auto sales slowing Detroit has taken a hit.  Nevada has an 8.3% unemployment rate because tourism is down and gambling revenues have dropped 69% as of June 2008. 

Retail sales – Are stores, restaurants, etc. surviving or shutting down in the neighborhood?  Sure it is a given that a business or two may fail in the neighborhood, but when anchor department stores and 25% of smaller stores in a large shopping mall are shutting down this may indicate further economic declines and hard times will hit the neighborhood. 

Overbuilt – Some neighborhoods are way overbuilt with too many homes for too few of people.  These areas may take a long time to recover or may not recover at all. 

Remember…

A cheap price on a foreclosure property doesn’t automatically guarantee a quick profit in the future, a lot of other factors are at play too.

Waiting for falling prices?

As we enter into a recessionary environment many people are being cautious with their finances.  Recently, we have seen a lot of great sale prices, stores going bankrupt and some stores downsizing the total number of stores they operate.  Many people think if they wait long enough the price will just get lower and lower and lower and lower. What is the hazard of this type of thinking and what are the things you may want to know…

Currently 26% of U.S. retail stores are in danger of filing for bankruptcy. 

Approximately 12,000 U.S. retail stores will close their doors in 2009.

6,000 – 7,000 U.S. retail stores will shut their doors by the end of 2008.

Up to 40% of retail stores profits comes from Christmas sales.  

66% of the U.S. economy relies on U.S. consumer spending.

60% of U.S. commercial mortgages are in default (this is yet to hit the U.S. economy)

As excess inventory is sold off retail stores will get leaner and meaner. The total number of retail stores will shrink due to closures and bankruptcies.  There will be less inventory on hand due to slowing sales and some stores will not be able to get enough inventory in to stock their shelves unless they have cash on hand and/or access to credit. That is probably easier said than done in this credit crunch environment. Eventually deep discounts will be become harder and harder to find as inventory levels shrink down to manageable levels and there is less competition in the marketplace in general. 

So… for the best selection and deepest discounts you may only want to wait for falling prices to a certain point.

I’m not an Economist, can you explain in simple terms, how does a central bank’s decision on interest rates affect me?

The central bank is responsible for the monetary policy of a country.  A central bank’s goal is to maintain stability of a country’s currency and the amount of money supply in circulation.

The central bank controls short term interest rates and are the lender of last resort.  (They are the bank’s banker)

By adjusting interest rates either up or down, the central bank manages a country’s inflation and the country’s currency exchange rates.  Interest rates also control the total amount of money in circulation in a country.  As interest rates go up, there is less money in circulation because corporations/people can’t borrow as much.  As interest rates go down, there is more money in circulation because corporations/people can borrow more.

Setting the interest rate is a fine balancing act indeed.  

Things you may want to know…

If the interest rate is set too low, money becomes cheap. This can over stimulate the economy because both corporations and individuals can borrow more and spend more. When there is too much money in circulation this causes increased demand for goods and services for everything, prices go up.  This is what they call inflation.

If the interest rate is set too high, money becomes expensive.  This slows the economy because both corporations and individuals can borrow less and spend less. When there is too little money in circulation this causes a decreased demand for goods and services, prices may go down, people may lose jobs. This can be referred to as a contraction, slowdown or recession.

Remember…

If the central bank is lowering interest rates, they are trying to stimulate the economy – make corporations/people spend more money.  If the central bank is raising interest rates they are trying to cool the economy – make corporations/people spend less money. If the central bank is leaving interest rates the same, they like the economy just like it is.

Interest rate adjustments take months/years to have an affect on the economy and central bankers can make mistakes by setting the interest rate too high or too low for too long of time period. Consider the economy like a super oil tanker and the central banker tries to change its direction with a little outboard motor called interest rate adjustments.  

How high will the price of oil go? It is no big deal to pay more for fuel or is it? Why should increasing fuel costs should concern me?

We have all heard about the rising price of oil on the evening news or may have read articles like these:

 

So you think, well I will just have to pay more to fill up.  I will juggle my budget and cut back on eating out, etc. to pay for my higher fuel costs.  Unfortunately, what you don’t know may be putting you at risk.

Things you may want to know…

 

What you can do…

As the price of fuel keeps rising or stays at high levels beware of commercial vehicles driving near you.  I watched this type of problem first hand today myself.  A double dump truck in the lane beside me had trouble stopping at a red light because his tires were worn.  He was driving way under the speed limit at the time.

Remember..

Truckers suffer from fatigue at the best of times, which can affect their driving.  If they are skimping on maintenance this further jeopardizes public safety.