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The Upside in Today's Real Estate Market
Reading through the unending torrent of media reports about Wall Street corruption, unprecedented government expansion and company failures, it seems difficult these days to find any good news. While it is true that our nation is having its share of troubles, I think it’s about time for some good news.
We can start by acknowledging that a lot of what has exacerbated the recent real estate “slump” is simply the news itself and how it has been reported. Unfortunately, media outlets found out a long time ago that negative news grabs more attention than positive news. So, do you think they would rather print negative or positive news? Hmmmm….. In addition, a lot of the news we hear is national news and I think we’ll all agree that Texas, and San Antonio in particular, have not been hit nearly as hard as other parts of the country. In fact, you may be surprised to here that certain areas in and about San Antonio have not only held their own value wise…they have appreciated!
Yes, there are some real problems in the real estate market but there are also real opportunities. Professional real estate investors, real estate brokers and agents have all had to wake up and find where “the cheese was moved” (see Spencer Johnson, M.D.) on more than a few occasions in the past 30 years. The old adage that “change is the only constant” has never been more true.
Have you ever heard that “wealth comes from chaos?”
How about “fortunes are made in bad times?” These are not new concepts; they have been true since the dawn of time. Today, there is plenty of chaos in the real estate market but that doesn’t necessarily spell disaster for all those in real estate related businesses. For example: while the rise in foreclosures seems grim on the surface, in reality it is causing properties to change hands and that means vital transactional business for realtors, real estate investors, mortgage companies and title companies, not to mention a wealth-building bonanza for those fortunate buyers who are smart, lucky or both.
On a slightly different front, a whole new class of unlikely home buyers is benefiting from the subprime debacle because now owner financing is becoming more popular. Buyers who couldn’t get an institutional loan, even in the good times, are finding and closing on a home of their own because many investors will agree to “tote the note.” Investors who are in a position to provide owner financing to buyers are finding themselves very busy.
Additionally, realtors who recognize this trend are not so fast to distance themselves from their less-than-credit-worthy buyers. These savvy agents are seeking out sellers that offer seller financing, making the sale and bucking the trend, all despite their buyer’s average or below average credit!
If there has ever been a good time for brokers and agents to jump in the real estate investing game, it is right now. The biggest obstacle for most is that they think they have to have money to join in the game. This is absolutely NOT true. Yes, someone has to have the money but that someone does not have to be YOU!
The person in control of a real estate deal is often the person who finds that deal and puts it under contract first. If you have enough cash for the earnest money you can potentially be an investor. Think about that. For the record, there are investors out there that have made their fair share of deals by starting with only $10 for earnest money.
After you contract for a good deal
The second step is to find someone with the money or the credit to buy and close on the property. As you can imagine, if you have a $100, 000 property under contract for $50, 000, it shouldn’t be that hard to find a “money partner” if you are willing to share 50% of the upside. Strike up a partnership with a money partner on one transaction. If all works well, it’s likely they’ll want to do it again and again.
Ask yourself a question: How many houses can you buy with your own money? Now, ask yourself this: “How many houses can you buy with other people’s money?” If you are in agreement that 50% (or 40% or 30% – deals can be structured many ways) of something is better than 100% of nothing…then you have finally answered the question of “how can you acquire real estate with no money?”
So, how do you find a fantastic deal on a property?
This has been the topic of many a seminar. One thing is for sure; there are more ways to find bargain properties than we have time to talk about here but let’s acknowledge just a few of those ways:
Foreclosure auctions, pre-foreclosure, farming, driving neighborhoods, classifieds, MLS, tax auctions, banks and mortgage company’s “loss mitigation departments”, other realtors, professional real estate wholesalers, direct mail, red tagged electrical meters, disgruntled landlords, TALKING TO PEOPLE…and this list goes on and on.
In fact, you can get a list of over 125 Ways to Find Bargain Properties at www.Homes2Go.NET/125Ways.
The point is this: the deals are out there if you know how and where to look for them.
The secret to successful investing may point to one very important skill – your ability to find and secure private money. What is private money? Private money is money that comes form private lenders… private individuals (rather than institutions, mortgage companies or banks).
Your ability to borrow money from others in return for a first lien position and an attractive interest rate is key. In today’s market, due to the subprime mess, you may find it easier than you think to raise private money. With the stock markets bouncing all over the place and CD rates as low 2.5%, many Bulls and Bears are looking for alternative places to put their money.
The smartest investors offer private lenders attractive annual interest payments (between 8% and 10%) and give the private lender a first lien position in the property. Furthermore, smart investors never let their private lenders loan more than 65% of the value of the property at the time the deal struck. This seems to work well for both the private lender and the investor. From the private lender’s point of view, properties would have to fall 35% before their investment was worth exactly what they had in it.
From the investor’s point of view, in a time when they can buy houses at 50% to 65% of their value, they can certainly afford to pay 8% to 10% interest. A Win – Win situation!
So whether you’re a realtor or an investor, a mortgage company or a title company, remember that when one door closes another door is very likely to open. Don’t stay with worn-out tactics and expectations that don’t work in today’s markets.
Find the new trends and move into them!
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