The public, when it comes to investment opportunities, is usually late and guilty of betting on the wrong pony. It’s just the way it is always been throughout the history of our republic. Depending on the geographic location, there are many bountiful opportunities to locate, buy at a deep discount, fix, keep or sell and make money. A short time ago as the real estate market was topping out and multiple buyers were backed up to buy one property suddenly that same property has little attraction. Sellers were left scratching their head and wondering “What happened?” During this period little or no buyer’s closing cost were paid by the buyer, no seller held second mortgages would be considered and the idea of the seller fixing any deficiencies in the property was discarded out of hand. Such are the perils in a “Seller’s Market”. The purchase contracts were written “AS-IS, WHERE-AS” because that was what the sellers were demanding and could get it.
Mind you, there is still a ton of cash on the sideline looking for deals, but their confidence has been shaken. Questions like, “What if I’m wrong, and I over pay?” No one likes to lose money. Now, it is more of an art to buying, fixing and selling than say six months ago where everyone who had a real estate license for a year or someone who had bought and sold one property was an expert. Few of the previous cadres of players had yet to go through a market cycle, as we are currently experiencing. Investors who needed to get the seller to pay all the closing costs and perhaps carry a second mortgage to make a low down deal couldn’t get it because their were more buyers than sellers and the prices were accelerating over night. During the peak of this feeding frenzy many investors left the market not wishing to participate in this price acceleration and perhaps overvalued assets.
Keep in mind; as long as this country is growing, population centers pushing out, and states have a plus gain in population there will continue to be a demand for housing. With the U. S. population passing 300,000,000 in population with a lot of upside combined with low inflation, job growth, low interest rates these are all positive signs for future appreciation and growth. For states and cities experiencing negative growth with shrinking populations then an investor needs to focus on the best conditioned properties with upgrades and value that will be appreciated in the market place. The ill maintained and tired looking properties will be targeted with being shabby property and thus unattractive to rent. If there is competition for tenants, then an investor must own the best property and command the best rents and keep that rental customer for a longer period paying attention to their housing needs. In addition, in these slower areas, a buyer/investor must be brutal with the purchase offers to have a chance of making sense of any kind of return. Motivated sellers are the only ones that need to sell and may consider a normally less than acceptable price and/or terms. It’s a question of who is going to take the hit, the seller or the buyer? Most savvy investors want that to be the seller. To be successful in any area, whether strong or weak, the properties must carry themselves. The first step is to structure the deal within the bounds of the financing to generate a positive cash flow. If repairs and upgrades are necessary to make those numbers happen and command the best rents, then that has to be included in the deal numbers.
Investors would dream of getting a great deal but had little opportunity to buy. Now with the ether wearing off, it is very possible to find those deals with lots of seller help. The fog is lifting and the vision for opportunities is clearing up. With all the positive news going on, the foreclosure market is ticking up. Many of the loans utilizing creative financing with built in rate increases such as in an Option ARM or a 2/28 ARM where now the rates are spiraling up have precipitated defaults. The financing was never structured for the long term. The flippers who bought high and tried to push the envelope are left holding the bag. Opportunity begs.
This market opportunity is not for the weak. It is for the bold and the daring that can see the vision of the future. This real estate market aberration will not last long. Where is the bottom, no one knows. Investors who try to time the absolute bottom will always be wrong. They will end up chasing a rising market, which quickly can get out of reach without any helpful motivated sellers who will pay the all the buyer’s closing costs and possible seller held seconds. In every deal there is price that makes sense. Where the rent less expenses and costs will offset the debt service and leave some reasonable cash flow. Once that make sense price is established, an offer needs to be made and many other properties need to be tracked for potential offers. There is plenty of money to be made between the top and the bottom of market swings.
Again, this is the time to bring assets to bear and accumulate good deals. This opportunity is fleeting. Many short sale opportunities are available to those in foreclosure, where the lender will take a loss. With a softer market all over the country, lenders do not have the luxury of being bailed out by a rising market. The REO (Real Estate Owned) departments will need to make major discounts to move the properties off of their ledgers as directed by economics and regulations. Listen, in the dead of night just before falling off to sleep there maybe a light tapping in your ears. Tap, tap, tap…opportunity is yours for the asking. This tapping will get louder and louder. One day there will be no tapping. Opportunity has passed you buy. The “investor” waiting for the bottom will be asking, “What happened?” Anyone within earshot will be bored to tears with stories of all the great deals he just missed out on. Whether good credit or bad credit the deals can be structured for cash flow. If you can get your make sense price, great, if not move on. There is no ready forgiveness for over paying. The savvy investor, who made it happen will just give that wily smile knowing he answered the knock (tap) and took action. He doesn’t have to share “what if” stories, for he put a team together and made it happen.
If there was ever an opportunity, it is right now. Knock, knock, who’s there?
Dale Rogers is a thirty-year mortgage veteran and frequent contributor to the Broken Credit Blog. The BCB is a free website created to assist the general public with information about credit repair and responsible mortgage lending.