Why Bailouts Will Never Be Used to Save a Foreclosure

Real estate and the free market will always experience cycles. There will be boom periods and then there will be periods of depreciation. In some instances, the negative trends will be treated with much media fervor because the media will generally draw an audience if the reporting strikes the right emotional cord. In some instances, pulling these emotional cords is sometimes used to affect policy and law. One such policy that pundits are attempting to influence involves drawing the government into an agreement to bail out those who are suffering from the current foreclosure crisis. While some would hope and pray for a bailout this is most definitely a next to impossible scenario to occur.

First, the number of homes that are currently in foreclosure in the United States has supposedly topped two million. There is simply no way the government could afford a complete bailout (or even a partial sliding scale bailout) to this many number of homeowners. The administration costs associated with such a bailout much less the bailout itself would cost in the billions. This would simply be a totally unfeasible process to undertake.

There is also a very dangerous message that would be sent in the advent of a massive federal bailout. That message would be that people are not required to be fiscally responsible for their actions. In other words, it doesn’t matter what you borrow or how you default because the government will be there to pay off your mistakes. Such an attitude would be a disaster for any nation’s economy.

The Home Needs A Lot of Work? GOOD! What an Opportunity!

If there ever was one thing that dissuades people from purchasing a home it would be the necessity to perform a multitude of repairs. After all, who wants to purchase a home and then invest tons of money into repairing the property as well as making the requisite time commitment that such repair work would entail? Now, while this situation may sound dreadful on the surface it is actually a great opportunity for an industrious person.

If you think this is an idealized description of the situation, then look at it this way: say the average market value of a similar home in the area is $250,000. The home you are considering purchasing is valued at $190,000 due to extensive repair work that is required. So, before making a decision as to whether or not this home is a viable investment purchase it may be wise to examine what the cost of the repairs will be. If the repair work will cost $30,000 then this is not a negative…it is a huge positive! If you do not believe so then simply do the math: $190k plus $30k equals $220K. Remember, the value of the home after repairs will be in the neighborhood of $250K. So, even with $30k in repair work you will end up with acquiring the home at a $30k discount! This is to say nothing of the equity appreciation the home will eventually accrue.

Of course, no one wants to purchase a home that is falling apart, but if the required repairs can be overcome by the equity one can acquire then this is far from a bad real estate investment venture.