From one end of the United States to the other real estate property 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 is asking the lender to accept less than what is owed on the property as payment in full. There are so many properties currently being submitted for short sales that lenders and service
Those properties that have been foreclosed and repossessed by the lenders are being placed 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 swelling already large inventories of homes.
The result of all this is the strongest buyer’s market we have ever seen in this country. The inventories of property for sale are at an all time high.
While this is dismal news for people that have to sell it is welcome news for those interested in purchasing homes. The opportunity to buy at very favorable price and terms has never been better. For a real estate investor it is the opportunity of a lifetime.
These opportunities are not without risks. The greatest risk in the current market is your ability to exit your investment. There is no doubt that you should be able to source a real estate property 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 in bankruptcy.
This is all part of building a solid business plan up front. Each property that you purchase needs to be evaluated on its own merits. You need to plan an exit strategy before you buy. This exit strategy needs to be carefully planned out 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, rehabbing, flipping and wholesaling. All are viable options depending on the property and all have different associated risks and rewards.
The safest method is wholesaling. This is the practice of putting a property under contract and usually selling the contract for an assignment fee to an investor that will rehab, buy and hold or flip the property themselves. This low risk also results in low rewards. Margins in this type of investing are small and as a consequence if you wish to make good money you must do volume.
One of the results of the mortgage crisis is that with declining property values, equity in those properties has also declined. The lax financing requirements also allowed many people to refinance their homes and pull equity out. Because of 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 is becoming more difficult for homebuyers. Investors are discovering that it easy to purchase homes that require repairs but selling those homes is becoming very difficult. When purchasing a home that will require a rehab the investor must account for additional holding time in order to sell the property. This translates to 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 that use buy and hold as a main strategy with some terrific returns. The one caveat with buying and holding property is that you need to make sure that the cash flow is sufficient to maintain the property and your business. Many investors have gone to the poor house owning lots of real estate. Remember that you can’t eat equity.
The last exit strategy is flipping. This is what you see on TV. Well not quite what you see on TV. In the real world flipping is getting more difficult unless you are selling to a cash buyer. The banks are scrutinizing each deal much more carefully and most want some amount of seasoning. Usually 6 months but sometimes as much as 12 months are required. There are ways around this problem but it does create some barriers, especially with first time homebuyers.
A savvy investor can make serious money in this market by being prudent and observant. Various areas around the country are undergoing different levels of hardship. Some of the areas that did not undergo rapid appreciation have more stable real estate markets.
Investors are moving around the country like never before seeking good markets in which to invest. By being prudent they are able to make acquisitions that will reward them greatly over time. Newer investors need to be much more cautious in making their acquisitions. Seasoned investors will have a much better handle on such thing as repair costs and carrying costs.
Often, newer investors will underestimate these items and come to regret it later on when these costs eat into their profits. Newer investors should make sure that they are receiving good information from any courses that they are taking. Much of what worked two years ago is not working so well in today’s market.
If you are purchasing a property to resell you must purchase it at a price that will let you create the nicest and best home in its price range. If your property is priced well under market and shows better than others it will sell in any market. Just be aware of your completion and be prepared to make a deal with a buyer. In a buyers market the buyer is king and they call the shots.