As America faces a recession, many panic and try to sell. What does that mean for real estate investors? For those who haven’t invested yet, it may mean fear and dread. For those who are investing, it means loads of opportunity! Which investor are you?
As for the recession, we expect it to last longer than most in recent history. Why? Several reasons include the fact that the overall real estate market is suffering the consequences of all of the creative lending done over the last several years, now called the “sub-prime mortgage crises”;
These consequences are sure to last while lenders seek solutions. The entire U.S. economy is suffering; retail sales are down, unemployment is rising, grocery prices are up and rising fuel costs affect prices of delivery which create a domino effect straight down to our consumer products. All types of crops were recently affected due to lack of rain in some areas and too much rain in others.
The Government continues to lower the interest rate in hopes of stimulating commerce, but that’s really just another quick fix idea that doesn’t take long-term effects into account. Isn’t that just what all the lenders did? Didn’t we just watch them giveaway mortgages to millions of unqualified borrowers by creating loans anyone could get? We’re now watching the long-term effects – didn’t take that long, did it? Now, we’ll sit back and watch the value of the U.S. dollar drop as interest rates go down.
When you combine all of these nationwide issues, you can easily see the economic consequences that will follow; it’s also obvious that many of these consequences have already begun. Why are we carrying on with all this negative talk? To make our point, which is that you can either allow fear to take over and essentially freak out about the next few years, or you can start taking advantage of the opportunity this time holds for those who are ready. Let’s be clear…we said “take advantage of opportunity”, not “take advantage of people.”
Understand that in a buyers market, there’s plenty of opportunity for real estate investors. But when you couple it with a recession, there’s a plethora of opportunity for you.
During this period, hundreds of thousands of folks throughout the country will become desperate to sell their possessions, including their real estate, for various reasons. Many reasons are the same reasons sellers have always had, such as probate, foreclosure, relocation and divorce. The difference this time is that there is no abundance of buyers to even take a look at what’s for sale. The interest in buying dries up. Isn’t that ironic? Ironic, because this is called a “buyers market.” So, where are their buyers? They are the savvy real estate investors! Have you ever heard the saying that, “the rich are doing what the rest of the world isn’t?” That also reminds us of the saying that, “the rich keep getting richer.” Join us in doing what the rich are doing and let’s get richer together.
Now…the real question for you is this: “How do you get prepared to take advantage of this opportunity so you can become rich too?”
The Answer: Learn the specific buying techniques used by savvy investors in this market and get started doing what they do.
It’s obvious that a normal buyers market makes millionaires, but when it’s combined with all the other factors mentioned, this is truly a phenomenal time in history for real estate investors.
As you learn how to negotiate, how to finance, how to buy, how to hold, how to manage your holds through this cycle, and other insider tips, you will come out wealthy in the end. As history repeats itself and the real estate market cycles into its’ next cycle, you will be one of the few savvy investors who was prepared and took advantage of opportunity. When the economy recuperates, appreciation builds, and rents increase, you will be sitting on your goldmine. It’s then when you decide which properties to hold, which to sell, which to leverage or even 1031 all of them into a large apartment complex or hotel or whatever it is you’ve always dreamed of owning. It really doesn’t matter…what does matter is that you finally acquired the wealth you’ve been looking to gain through investing. And you can begin enjoying its fruits. This takes a plan combined with action on your part. We will supply the plan and the tools, you must take action.
If you’ve yet to invest, you’re probably wondering how to in a market that before reading this, looked so bleak. You’re probably asking yourself why you didn’t jump in when the market was hot. Some jumped in then because everyone else was and now regret it because they really didn’t know what they were doing and are now stuck with over-leveraged and negative cash-flowing properties. The good thing is that it’s never too late to turn lemons into cherries, even when it requires making good investment decisions now to pay for the mistakes you’ve made in the past.
The following are strategies you should use for investing in a buyers market:
Location:
Because the nation is in a recession, it puts a large part of the country in a buyers market. That means you can use recession proof investing strategies anywhere you’d like to buy property. Where have you always wanted a second home or a first home for that matter? It’s easier now to find property globally thanks to the Internet. Some parts of the country haven’t seen huge drops in real estate value and although buying may have slowed down, there are still great deals and opportunity to be found. The reason for that is simple. Areas with rapid appreciation are the areas seeing the most depreciation. Most rapid-appreciation areas didn’t have the means to support the prices. By that I mean that the median income population (the majority) of the area couldn’t afford to pay the mortgage payments associated with the increasing prices. But thanks to those sub-prime loans, everyone who wanted to was able to buy during the frenzy. These areas are where the most opportunity lies because the overall real estate market seems bleak – a true buyers market with high seller desperation.
Situation:
In a buyers market, there is a plethora of sellers. The more sellers come on the market, the more the buyers gain control.
Many truly motivated sellers will agree to almost anything to get their property sold quickly when things seem dismal. That’s why it’s important to take advantage of opportunity and not people. There are already enough bad apples out there.
As investors, we’re always seeking motivated sellers willing to sell at our price. What makes them motivated is not that they want to sell…it’s because they are desperate to sell. Various circumstances regarding the property like foreclosure, code violations, vacancy, absentee-owner, disrepair, bad tenants, inheritance, or back taxes are just a few. Even long days on market is a good indicator of a desperate seller.
Filling a need is where the rich make money. In real estate investing, investors fill the needs of motivated sellers.
Our typical customers are sellers looking to get out of their burdening real estate situation yesterday. When a buyer comes along who can meet their need quickly, is honest and sympathizes with them, they’ve got the deal. Imagine a doctor for a moment. When you’re sick and need help, you want relief quickly. Depending on how painful your condition, you are willing to do exactly what the doctor asks and depending on the pain, you’ll pay whatever you can afford – all to make everything better fast. This is exactly how you are seen by your seller. That seller needs a trustworthy and reputable real estate doctor who can help relieve the pressure. Think of it like that and realize how needed an honest, ethical investor is in this business.
Cooperation vs. Rejection:
One of the best techniques you can use in a buyers market is to get a team effort engaged on your behalf. In other words, when the real estate market is hot (a sellers market), real estate agents and mortgage brokers have plenty of business and aren’t as eager to present your lowball offers, making it harder for you to work with them and equally hard to get more deals.
In a buyers market, they become just as desperate as the sellers, trying to find ways to earn a living. Get them excited about helping you by finding and/or referring leads to you.
They can earn commission and points, respectively, when you buy a property through them. We find most agents enthusiastic about cooperating with us to get our offers accepted. This is an amazing benefit and will build lasting relationships that you can count on when the market spikes again.
Everyone who’s still working in real estate will be cooperative if they find your proposal rewarding. Teach them what you’re seeking and by doing so, you’ll duplicate yourself several times over. That’s powerful.
Spaghetti Theory:
Not that I recommend playing with your food, but it really becomes a numbers game. Ever heard the theory, “throw the spaghetti against the wall and see what sticks”? Well, that’s really how it seems to work. Speak to enough sellers – present enough offers – and by sheer numbers, you will begin to receive accepted contracts. Sometimes the spaghetti sticks immediately and other times it slides down the wall slowly but before it hits the floor, the seller calls back and accepts. That process can take several months actually, so the sooner you begin throwing your pasta, the more offers you’ll have in your pipeline and the more chance you’ll have of deals coming together over time. However, this can’t happen unless you actually take action!
Short Sale Strategies:
It’s imperative to use strategies that will allow you to create equity for over-leveraged, desperate sellers. The short sale strategy is a must in the buyers market as banks will need your help to unload their non-performing inventory. Even learning subject-to and lease option strategies will help you assist sellers during the next few years. Coincidentally, the cover story in RealEstateSuccessMagazine.com this month teaches the Short Sale Strategy; be sure to read it because the author is amazing!
Long-term Plans:
This is the time to plan on keeping some long-term holds. Wholesale some property for cash and keep the best for yourself. Create positive cash flow easily when you buy right using great terms and conditions and then sell when the market peaks again. As you build your nest egg, you will grow in cash-flow and equity. By the time the nation recuperates and the recession ends, the market will begin to appreciate again. It’s a proven fact that history repeats itself. When it does, you can sell the properties you decide to, which may even be all of them, and reap your reward.
If the Fed wants to lower interest rates, let’s take advantage. Banks are scrutinizing their borrowers even more than they ever have because they’re afraid of taking on even one more bad loan, making it more difficult to qualify for a conventional loan today. However, if you are buying right and your credit worthiness isn’t too butchered, you can still obtain financing. Even if you need to obtain hard money financing for the initial purchase, when a deal is good enough, it’s worthwhile. Fix it, rent it and refinance.
Timing:
The time couldn’t be better for experienced investors to change the way they’re investing or for new investors to get started using the right techniques. According to our research, the current market will recover in about 4 years (that’s 2012).
The sooner you get started using recession proof investing strategies, the wealthier you will become over the next several years. It’s like putting your real estate investing business on steroids.
Remember the horrible stories from the Great Depression? Well, let’s hope things don’t get that bad! The point is to remember the stories of the folks that became super rich during the Great Depression. Do you know what they did? They were buying whatever they wanted at extremely low prices because so many had to sell. That’s what we are beginning to see and will see over the next few years. Don’t be one of the vast population that’s overcome by fear and begins to sell everything just to make ends meet. Be one of the few savvy investors who takes advantage of education and takes action to do what will make them rich in the end.
Most folks become real estate investors, whether full-time or part-time, to ensure their financial future and prepare their family for a comfortable and early retirement. They jump in, even without education, making costly mistakes. If you haven’t taken that jump yet, then you’re reading this just in time. If you’re still dreaming of sending your kids to that private school, taking those dreamy family vacations and enjoying some of the finer things in life, then it’s not too late. If you’ve wasted your previous years dreaming about a different future but fear has prevented you from taking that plunge, then all of your excuses are gone.
Don’t wait until retirement to change your life. It may be too late then and this market’s opportunity will have since passed.
Today is the day to take action and obtain the education, tools and strategies you’ve been missing.
Realtors and mortgage brokers are going out of business because they only know one way to do business. Even real estate investors are seeking jobs because of fear from lack of knowledge in today’s cycle. Don’t let that happen to you. Education will eradicate fear and getting involved will keep you from missing out and having regrets later. Reward waits for those who take advantage of opportunity and timing is everything.
Analyzing the Opportunity:
Ever heard the old saying, “you make your money on the buy”? That’s absolutely true. Most often, a deal that actually loses money has a common root. The buying decision was flawed. The investor either bought on emotion, underestimated repair costs or value, or didn’t plan the exit strategy before he closed. Has that happened to you? This is your paycheck so you can’t afford for payday to cost you. Let’s look at a few questions you should ask yourself when analyzing your purchase.
The following questions should be asked on each purchase:
- Which type of property do the majority of buyers and renters in your investing area desire?
- How much is the average retail value of this property in after-repaired condition?
- Why hasn’t the seller sold the property prior to your introduction?
- What are the average “days on market” for properties like this one, in this area, to close?
- How much profit do you want to make?
- How much is the rental income for this property?
- How long will repairs take?
- How much are carrying costs?
- How much (financially speaking) is the “cushion or fudge factor” estimation?
- Will the property cash-flow at the purchase price plus all costs (repairs, carrying, etc.) you’re paying?
- What is your first-choice exit strategy?
- What is your second-choice exit strategy?
- At which point in time (financially speaking) will exit strategy number one begin to dip into your profitability?
- At which point in time will you switch from exit strategy number one to exit strategy number two?
After answering these questions, you should really be enlightened as to how profitable the deal is. We buy as if our first exit strategy is wholesaling. Wholesaling is when you assign your rights and interest in the contract to purchase the property to another buyer for a profit known as an assignment fee. This is an extremely popular technique since it requires deposit money only. When you leave the closing, all you did was get paid as a “middle man/woman” so to speak. You do not need a real estate license, nor is it illegal when done properly. When you purchase for wholesale purposes, you must pay “less” for the property than your buyer would pay – that should make sense, since you must build in your profit when you make the decision to buy the property. In this strategy, our buyer is another investor whose goal is to keep the property as a rental or fix it up and sell it to an end-user. Therefore, our buyer must have enough “room” in the deal for a healthy profit also.
The great thing about wholesaling as exit strategy number one is that if we don’t find a buyer for any reason whatsoever, we built in “extra” profit so it makes our numbers for a buy and hold or fix and flip even better.
In Conclusion:
As I explained earlier, if you’re already investing, I want to encourage you to switch into a deeper gear. If you’ve been getting disappointed in your current investing results, it’s probably because you’re still doing what you’ve been doing since you began. Those strategies won’t bring big results in a buyers market. Even when retailing, properties need to be the best looking at the best price to move. There are still retail buyers looking for good deals too – be the one who sells it to them. As for a rental portfolio, whether you have one or not, strongly consider growing one now; when this market cycles you won’t regret it. If you’re brand new, now’s the time to apply the right strategies and get started. Consider yourself fortunate that you are reading this today, when things couldn’t be more ripe for opportunity. But remember that opportunity doesn’t last, it doesn’t wait and it will pass you buy.
I can’t stress it enough…do what savvy real estate investors do and get involved! When are millionaires made? When everyone is selling, millionaires are buying. When everyone is buying, millionaires are selling. So, what are you doing?
by Sharon Restrepo
The American dream of homeownership is a very feasible aspiration for 2012.
