From one end of the United States to the other, real estate values are falling. In some areas, like Arizona, Florida, Nevada, Michigan, and California, they are in free fall.
Foreclosures are at an all time high, flooding the market with homes for sale. Many of these homes are currently worth less than what is owed on them. The only way these sellers can move their property is through a short sale.
A short sale means that the seller asks the lender to accept less than what is owed on the property as payment in full. There are so many properties now being put up for short sales that lenders and the service
Properties that have been repossessed and repossessed by lenders are being put up for sale in the form of REO (real estate owned) properties. The number of properties in this category is increasing at a rapid rate and adding to the already large housing inventories.
The result of all this is the strongest buyer’s market we have seen in this country. For-sale property inventories are at an all-time high.
While this is bad news for people who have to sell, it is good news for those interested in buying homes. The opportunity to buy at very favorable prices and conditions has never been better. For a real estate investor it is the opportunity of a lifetime.
These opportunities are not without risks. The biggest risk in today’s market is your ability to get out of your investment. There is no doubt that you should be able to get real estate at a good price, but what are you going to do with it once you have it? It is possible to buy 15 properties a year at great prices and still end up broke and bankrupt.
This is all part of building a solid business plan up front. Each property you purchase should be evaluated on its own merits. You should plan an exit strategy before you buy. This exit strategy must be carefully planned and implemented.
In a buyer’s market this practice becomes a necessity.
There are numerous exit strategies available to a real estate investor. Some of these are buy and hold, rehab, flip, and wholesale. All are viable options depending on the property and all have different associated risks and rewards.
The safest method is wholesale. This is the practice of putting a property under contract and typically selling the contract for an assignment fee to an investor who will rehabilitate, purchase, and hold or exchange the property himself. This low risk also results in low rewards. The margins on this type of investment are small, and as a consequence, if you want to make good money, you have to make volume.
One result of the foreclosure crisis is that with property values declining, the equity in those properties has also decreased. Lax financing requirements also allowed many people to refinance their homes and withdraw equity. Due to these two situations, it is often difficult to find good wholesale deals in many parts of the country.
Exit strategy number two is to rehab and sell the property. This is also becoming more difficult as access to new mortgages becomes more difficult for homebuyers. Investors are finding that it’s easy to buy fixer-uppers, but selling those homes is becoming very difficult. When buying a home that will require a rehab, the investor must take into account the additional wait time to sell the property. This translates into a lower purchase price for the original seller.
Buying and holding property has always been a popular way to build wealth through real estate. This market will reward investors who use buy and hold as their primary strategy with excellent returns. The only caveat with buying and owning property is that you need to ensure that the cash flow is sufficient to maintain the property and your business. Many investors have gone to the poor house that they own lots of real estate. Remember that you cannot eat equity.
The last exit strategy is to flip. This is what you see on TV. Well, not exactly what you see on TV. In the real world, investing is getting harder and harder, unless you’re selling to a cash buyer. Banks are scrutinizing each deal much more carefully, and most want a little spice. Usually 6 months, but sometimes up to 12 months are required. There are ways around this problem, but it does create some barriers, especially with first-time homebuyers.
A smart investor can make a lot of money in this market by being careful and observant. Various areas of the country are experiencing varying levels of hardship. Some of the areas that did not experience rapid appreciation have more stable housing markets.
Investors are moving around the country like never before in search of good markets in which to invest. By being careful, they can make acquisitions that will pay off enormously over time. Newer investors need to be much more cautious when making their purchases. Experienced investors will have a better handle on things like repair costs and maintenance costs.
Newer investors will often underestimate these items and regret it later when these costs eat into their profits. Newer investors should make sure they are getting good information from the courses they are taking. Much of what worked two years ago doesn’t work as well in today’s market.
If you are buying a property to resell, you should buy it at a price that allows you to create the best and best home in your price range. If your property is priced well below market and shows better than others, it will sell in any market. Just be aware of its completion and be prepared to make a deal with a buyer. In a buyer’s market, the buyer is king and calls the shots.