Sacramento Investors get prepared for the next wave of foreclosure home investment opportunities

The real estate market is certainly on a historic roller coaster ride.  Yes, unfortunately, there are countless folks that are being caught up in the foreclosure storm that is sweeping across the country right now, but on the flip-side, this is creating significant investing opportunities for others.

There is another wave of foreclosures coming to the Sacramento real estate market. In fact there is a wave of homes that are already owned by the bank that are just sitting there... not currently on the market. For more information about this shadow inventory read Lori Mode's recap from our Sacramento Real Estate Investor Forum at the Rental Housing Association.

The following are actions that you can do to best prepare yourself to take advantage of the current shadow foreclosure some of these upcoming opportunities in our Sacramento real estate market.

Start with the End in Mind:
Be clear on what your desired financial outcome is and work strategically backwards to your current position. Specifically, how far out into the future are your milestones and how does this compare to your current situation and available resources.

Credit:
Lenders are becoming much more risk adverse and your credit history is becoming much more important when applying for a mortgage. Do whatever you can to get your middle FICO score at 740 or higher. Other than paying your bills on time make sure to keep credit card balances at lease 25 or 50% of allowable balances.

Employment/Income Source:
Many of our clients are self-employed and/or own several Sacramento rental properties. The biggest challenge for these types of clients is their tax returns are really ugly. That is the reason why we buy investment property... right? Yes as a Sacramento Investor you want to take advantage of the ample tax benefits available for owning rental property... BUT it can hurt you when you go to apply for a mortgage. Consult your CPA BEFORE you file your next tax return and make sure you have a good strategy to deal with this. It may make sense to file an extension until your purchase or refinance transaction has been completed.

Down Payment/Reserves:

• Plan on a down payment of 20-25%, depending on your purchase price.
• Your down payment funds may need to be seasoned two months or be prepared to provide proof of where the money came from as well as a letter of explanation. 
• Plan on having 2-6 months of the subject property monthly expenses left in your accounts after close of escrow. Some lenders are requiring 6 months reserves for every property you own. It's in your best interest to maintain this even after purchase of the property to cover expenses in case you experience occupancy or maintenance challenges.
• Consider partnering or joint venturing with other parties if you need to augment your resources.

Compatibility of Loan Terms:

• Make sure your loan product is compatible with current Sacramento real estate cycle and your exit strategy. Always give yourself  room for worst case scenarios when choosing adjustable rate products and prepayment penalty terms.
• Make sure you are aware of existing loan terms so that there are no surprises in regards to your existing portfolio. In certain circumstances, especially in this declining market, it may even make sense to refinance before your rate adjusts rather than be caught in a circumstance where your options are limited. If you are unsure of these terms, contact your mortgage advisor to help you get clear.

Develop Team:
Real estate investing in Sacramento is a team sport and should be treated as a business. Make sure your current team of advisors, including but not limited to, property manager, mortgage provider, CPA, attorney, and Realtor are real estate investment savvy and preferably own real estate investment themselves. That way they are personally vested in keeping up with the latest developments.

Lastly, make sure your advisors are proactive and strategic and don't be afraid to trade up if you need to get referrals from competent advisors to fill in other gaps.

Real estate investing can be a great source of long term wealth building if done prudently. Position yourself to take advantage of the real estate opportunities in our current real estate cycle.

Happy Hunting!

This blog by:

Team Newington
Sacramento Mortgage Planners
First Priority Financial
(916) 687-6868

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