The recession of 2008 caused the entire economy to collapse. We could argue about the effect of foreclosure on the national economy, but statistics showed that economic progress is dependent on the real estate investment sector.
The Effect of Recession on the US Economy
When a homeowner defaults, the mortgage becomes a non-performing loan. Banks can no longer enjoy a steady stream of income. They even have a hard time recovering the initial investment. According to one source, foreclosure causes bank a loss of up to 25% of home value.
Financial institutions tend to get rid of these non-performing loans as they are blocking the money which they can invest in other profitable ventures. The lack of capital creates a fearful environment, forcing everyone to be cautious with their investments. Banks impose high-interest rates to make money from their existing pool of investments. The lack of capital and enforcement of high-interest rates create difficulties for small business owners.
The situation improves when a real estate investor chooses to purchase those distressed assets. Many real estate investors reach out to homeowners before their homes are foreclosed. The sale of distressed assets creates income for banks. Homeowners receive cash for their properties, and they can sell the house without having to lose it to a bank foreclosure. After the renovation is complete, in most cases the property gets listed and is put back on the market.
How are Real Estate Investors Contributing to the Success of RE Market?
Green housing is a popular subject. Investors contribute to this sector by renovating the zombie properties. Banned insulation materials in old homes are safely replaced. Low-flow faucets and pipes replace old fixtures. The installation of latest appliances and energy-efficient windows improve the market value of the property. More often, investors work on the layout, hardwood floors, and new styles thus raising the lifestyle standards of the entire community.
These types of improvements increase public awareness regarding ‘green living.’ Families can access fully renovated, green homes which affordably provide a healthy lifestyle.
Creation of Jobs
The U.S. labor market suffered severely from the recession. Around 500,000 people in the real estate sector lost their jobs because of the housing market crash. Residential redevelopers play an important role when it comes to adding new jobs to the market. Each flipping project requires unique expertise and skills. A typical property rehab project involves the effort of these professionals:
- Real Estate Agents
- Expert Contractors
- Title Insurance Agents
- Inspection Professionals
- Home Appraisers
- Mortgage Lenders
Location plays a vital role when calculating the price of a house. Home prices in the entire area go down if there is a foreclosure case or a zombie property in the area. You will not get a high price for your property if every 1 in 17 homes in your neighborhood is in a distressed condition.
Real estate redevelopers improve this situation by purchasing the eyesore properties. These properties come back into the market after they are fully-renovated. This action increases the average price of each property in that neighborhood.
Payment of Taxes
Most banks do not have a dedicated department for dealing with distressed properties. Foreclosed homes become a liability for the bank. Financial institutions eliminate this liability by selling the property, but often the process takes months, sometimes, years. During this entire period, no taxes or HOA fees are paid on the property. Harsh weather conditions and absence of an insurance plan damages the home structure.
When investors purchase such properties, they pay tax to the government. The money exchanges hands and is then used for the development of schools, hospitals, and other local improvement projects.
Helping Distressed Homeowners
Sometimes, because of unavoidable circumstances, homeowners have to sell their home fast. The problem can be a divorce, foreclosure, a new job or illness. Life pulls us in different directions, and sometimes things just do not go our way. Real estate redevelopment companies are created to help such individuals. The companies assist homeowners with a quick sale of their home. Reputable rehabbing companies also provide a free consultation to homeowners who want to keep their house but are struggling financially. An honest, professional rehabber can guide you about your options and how can you keep your house. But, if you want to sell the house, that same property rehabber will gladly purchase your home as-is for a cash price.
CT House Buy LLC is a residential redevelopment firm. Our company is dedicated to assisting homeowners in stressful situations. If you are looking to sell or buy a house, let us know.