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Equity Firms Look to The Distressed Housing Market As Equity and Bond Markets Slow

12 April 2012 - News

Billionaire Warren Buffett believes that with the right property management, one can take advantage of the distressed single family homes now available at discounted prices across the United States.

Forever imparting his investing wisdom, Warren Buffett shares this in his recent CNBC interview. Since 2008 investing in single-family homes had been very attractive, but it should be done with the utmost of care.

“There is leverage in owning a very cheap single-family home now, that can be transformed into additional monthly earnings through rentals while a fraction of those earnings service the low monthly rates of a 30-year mortgage,” he told CNBC.

He went on to say, “If I had a way of buying a couple hundred thousand single-family homes and had a way of managing them (the management is enormous), which is really the problem because they’re one by one. They’re not like apartment buildings. I would load up on them and I would take mortgages out at very, very low rates.”

Mr. Buffett has acknowledged that Berkshire Hathaway, his holding firm, is one of those private equity firms who have been involved in buying distressed properties and making a profit out of them by renting it out.

“We’ve been steadily buying foreclosures and other distressed properties in Grand Rapids since 2008, and are in contract to buy 3 more houses, 1 duplex and 2 single-family homes, in the next few months,” he adds.

Due to poor returns from the bond and equity markets during the past few months, these big time investment houses are looking to the foreclosed housing market, especially in the U.S.

A report of the Wall Street Journal further proves that the big money lenders comprised by hedge funds, university endowments and pension funds are attracted to the single-family foreclosed housing market. Some are even teaming up with local companies, who had the expertise in acquiring these distressed assets.

The Wall Street Journal pointed out the partnership between a hedge fund Och-Ziff Capital Management Group LLC with McKinley Capital Partners, who had acquired 300 distressed single-family homes in the San Francisco Bay Area in California.

Och-Ziff Capital wants to buy at least 500 more foreclosed homes in the next year, rent them out and ideally dispose of them when the housing market improves. Property research firm Zelman &Associates, based in the U.S., said in its recent evaluation of ownership trends during the years 2005 to 2010, that the number of renters has surged by 21.1%.

The study further notes that especially in the states of Arizona, Florida and Nevada, the number of single-family homes rented was up by 47.6% compared to those owned rising only 0.5%.

Let’s look at some of the main points to consider when taking those steps to buying a property in the the U.S.A.

1. Pick your location wisely. This is important first step.

2. Enlist the help of a reputable realtor (property agent) that knows the area and will guide you through the process.

3. It is prudent to allow for approximately 5% of the property value to cover costs such as notary fees, title insurer and any other various legal costs.

4. Once the ideal property has been found and price negotiated, it is usual for the purchaser to put down a deposit. It is at this point followed by a formal offer, accompanied with a purchase contract. Once this is signed, the sale is binding.

5. One of the most important criteria when purchasing property in the USA is timing. Contracts are usually date specific and should be adhered to, or risk losing your deposit.

6. It is possible to find finance in the USA as a foreign buyer and US mortgages are available from 70% - 80% loan to value.

7. Obviously it is up to the individual to fully understand all visa requirements, which will be needed for various durations of stay in the country. All information on this can be found at your nearest American Embassies, Consulates, and Diplomatic Missions in your country.

By News (April 12, 2012)
USA Property sales | American vacation rentals | USA Monthly lets



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