CNNMoney calls US Real Estate Market “Pain Street USA”
Written on January 8, 2008 by Peter- REBB Founder
Yesterday, Yahoo Real Estate released an article titled “Pain Street USA: ‘08 housing outlook.”
http://promo.realestate.yahoo.com/pain_street_usa_2008_housing_outlook.html
In that article, CNN Money’s writer Les Christie, says that the United States’ Real Estate market forecast is ”for a longer, deeper home-price slump than previously expected, with double-digit declines in many markets.”
Les continues saying that the expected downturn will continue during the 2008 with losses more than 20% in some metro areas (according to survey conducted by Moody’ Economy.com).
Places like Punta Gorda, FL., Stockton, CA, Modesto, CA, Fort Walton Beach, FL. and Naples, FL. are just a few places that have the worst price drops.
U.S. Census Bureau reports a total of 2.1 million vacant homes for sale.
What? 2.1 Million vacant homes?
One of the big causes for this slump was fueled by the speculators in the early part of this decade. Everyone was jumping on board, buying overpriced houses, hoping they’ll be able to flip the property for $30,000, $40,000 and even $100,000 profit in a couple of months without actually running the numbers and making sure they work.
In the early days, some of those speculators made their money, but someone along the way, got stuck with an overpriced home. That is one of the reasons why we have so many properties in foreclosure. People can’t afford to make their payments anymore. The market is readjusting itself and prices are falling, especially in those past hot markets from few years back.
I really feel for those people. I don’t wish for anyone to end up in a foreclosure situation. There are a lot of unfortunate people out there that need help. Did you hear me, they need HELP!
So, I have couple of questions for you…
How do you see our real estate market today? What do you think? Do you think this is the worst or the best time to invest in real estate?
Are you still waiting for the right time to start investing in the real estate? If you haven’t started investing yet, what’s holding you back?
Post your comments below. I would really want to hear your opinion. I’m hear to help. But in order to help you, I need your feedback.
I have a lot of information to give but I need you to tell me what you want to hear so I don’t give you information you don’t want to hear. So, let’s hear it…
To your success,
Peter
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OK, here’s my 2 cents. I am so excited about the opportunities available in todays market I can hardly sit still. This “doom and gloom” cycle is when you can get rich. But with my limited resources, I don’t know where to focus my time for the greatest ROI.
I have “dabbled” in the preforclosure, subject to and lease to own fields with minimum success and am currently buying REOs for cash, rehabbing them, refinancing with cash out and renting them Section 8. My strategy is to hold these properties as long as I can afford to or sell when the market improves. But how long will the “no doc” loans be available and how many can we possibly hope to acquire before the banks say “no more” Mr. Investor? The weakest link is funding. I have had little success with “private money”, hard money is ridiculously expensive and lines of credit have been modest at best but the lines have been the vehicle that has “kept us in beans” so far. Commercial funding intrigues me but on “paper” I don’t think my companies are “there” just yet. Clarity and a nudge in the right direction would be a real benefit at this juncture. Successful marketing has been another weak point in my execution boyj to find and move properties.
My goal with my companies from the beginning has been to develope a “homeowners advocacy” position in my community to help both those in foreclosure as well as those wanting to own their own home. But to date that hasn’t paid the bills. I believe in the concept that if you help enough people get what they need the money will come. Staying “alive” long enough to establish a foothold has been the challenge. It would help to note here that I made the decision several years ago to commit to this goal full time so there is no “JOB” now or in my immediate future unless a recession hits or I run out of capital.
Any thoughts or comments?
I’ll throw in 2 cents, but remember I am not a lawyer or CPA (and I don’t play one on TV and I never stay at Holiday Inn Express).
1. This is a buy-and-hold market for positive cash flow. You must run the numbers with an accurate market rent survey. When looking at a property, work backwards starting with the conservative monthly rent, subtract taxes & insurance, subtract conservative positive cash flow & expenses (maintenance, utilities, contingency). The remainder is what you have for loan servicing. Shop around for non-owner-occupied interest rates, then calculate the loan amount. This is 80% of the purchase price or the appraised value, whichever is less; it’s what the bank will loan on the property. You want your purchase price to be less than the appraised value to account for your profit and repairs. If the numbers work, then buy it. If not, then move on to the next property. Never enter a bidding war.
2. NINA (No Income No Asset) loans will be around for a long time. You just have to look harder for them and have a reasonable down payment. Some lenders don’t care where the DP comes from, so it’s still possible to get 100% financing using multiple loan sources. Just be sure to disclose in writing how you are really structuring the financing.
3. The “normal” limit for conventional loans is 10 properties per borrower. There is *no* limit for subject-to acquisition, but good existing loans to take over are hard to find.
4. Private funding is easier to repay than hard money. You definitely need some guidance from an attorney to avoid violating securities law when soliciting folks for private funding.
5. Signature credit lines for “chunks” of cash help you close deals fast, then later refinance to replenish your revolving credit lines.
6. You cannot work for free by helping people get what they want, then hoping somehow cash will magically appear in your bank account. You are in a FOR-PROFIT business, not a charity. Helping people avoid foreclosure is a valuable service and you deserve to paid for your time, effort, and courage to take risks. Make sure everyone knows up-front that you intend to earn a profit from the transaction. If your customer is just trying to unload his problems onto you, then end the conversation and leave your business card. You cannot help everyone, and you only want to help those that truly deserve your services and are willing to let you earn a living.
7. I feel your pain about not having a job. You must circle the wagons, live like a monk, eat rice & beans, stop buying toys or wasting money non-essentials, sell your junk in a garage sale or flea-market.
8. Build positive cash flow with every transaction by buying right and being prepared with at least 3 exit strategies. Ideally, find your buyers/renters first before committing to a purchase. Having in hand a signed lease agreement helps greatly for getting an investor loan to buy a property. Having a pre-approved buyer means you can assign your purchase contract to that buyer for a fee without getting a loan to buy then sell the property. Don’t lease-option a fix-and-flip, just option it with the right to make repairs (with full credit of the repair costs and option consideration to apply as cash to the purchase price). Then flip your option to the end-buyer or to another investor.
9. Commercial loans are usually 70% Loan-To-Value, requiring a 30% down payment. There are some lenders that will go 90% or higher, but you must search for them and they have stringent qualifying. The good thing about commercial loans is that they are almost always easily assumable. The lenders don’t care who makes the payments, they just don’t want to be repaid right now (most have significant prepayment penalties). So, look for commercial properties with positive cash flow and “don’t wanter” owners. Take over their properties and assume their existing loans. Only pay the price that is justified by how the property is currently managed. Never pay the seller for your future efforts. If you improve the property, increase the rents, then only you are entitled to the increased value of the property.
10. There are still small, local “boutique” banks and credit unions that will loan purchase money or cash-out refinance money to investor. These lenders must be sought out and you must establish a rapport and business relationship with them, because they are lending to *you* rather than to your FICO number.
11. Marketing is critical, but it must fit your niche. Look for mortgage brokers and title companies that will help sponsor (finance) buyers’ and sellers’ seminars. Your sponsors pay for the event, and you get up there in front everyone make your powerpoint presentation for 30 minutes. Don’t sell what people *need*, sell what they *want*.
12. The subprime market collapse has only fallen on the lender side. The buyer side still has great demand for subprime financing. Seller financing (1st+2nd notes or wrap-around notes) are ideal for attracting credit-challenged buyers (always avoid the bad credit risks). With tight credit markets, existing loans with good terms that can be wrapped are a gold mine. Check into the Section 8 programs for home ownership. Some areas have programs for section 8 subsidizing for home mortgage payments. Selling on a wrap-note with guaranteed government payments is huge cash flow.
2 cents worth. your mileage may vary.
Jeffrey Smith
Note Investor and Colorado Licensed Real Estate Broker
jeffrey-smith@earthlink.net
I have read the entire internet (it seems) and signed up for teleseminars and ordered books, signed up for seller lead sites,etc. I can find deals all day long but…where are the buyers (the real buyers)? I want to start out wholesaling but who do I sell them to? All the guru’s say they actively buy houses but they won’t buy mine unless I can fork over $1,500 for their course or $4995 for their boot camp.
My husband is a painting contractor and a pastor. The building has stopped in our area and we are on our last dime. I’m starting this RE investing business to pull us out of the hole. I’m finding that you must have good credit and money stuck back to get into this business. The hard money lenders do ask for credit reports and money in an account and the people I know with money that I’ve approached about being a private lender for me are so tight they squeek. They are hanging on to every dime until they see what the economy is going to do.
You can’t even do “no money down” stuff if you can’t afford signs,flyers, or gas in your truck to drive all over the place.
We were doing pretty good until July 2007 when all work stopped. We have tons of brand new spec homes in our area that are just sitting empty and some are unfinished. The builders have yet to reduce the prices (I don’t know what the heck they’re waiting for!).The last 6 months have drained us. Now the next person I listen to had better be introducing me to a private lender and a cash buyer before I buy another darn thing from anyone.
I guess what I really should do to make any money is get on the internet and sell a bunch of “how to” gibberish to some poor unsuspecting souls that are in the same boat I’m in(the one with a hole in it!).
Great comments guys. I have some comments of my own here for you.
Jim…
I feel your struggle, especially in this economy. I’m not sure what area/state you are investing in but it sounds like the same market I am in. Read Jeffrey’s post, he is giving you some great advice.
One other point that I would like to make here.
Reading your post, it seems that you are trying to do almost everything, from preforeclosures, to subject to, lease options, REOs, and Section 8.
Here’s my advice. You need to get focused. Doing everything, especially yourself, will get your burned out really fast. You need to pick one strategy and get good at it.
I know there will be people commenting here saying
that you need to know how to do short sales, preforeclosures, subject to, owner financing and so on. Why? Because if a deal comes along, you need to be able to use that one technique to make it happen.
My answer is that if a deal comes along and it doesn’t fit your technique, wholesale it to another investor for quick cash or get some advice from another investor/split the profits.
I believe in long term income but you need to pay the bills. Wholesaling will get those bills paid.
******************************************
Jeffrey,
Those are some great comments and advice for Jim. Sounds like you’ve done few of those deals
I see you have a lot of experience in notes. That’s not my area so I won’t talk about it. I know banks, at least in my area, are not throwing money around anymore. I am dealing with a lot of developers on a daily basis and they are having hard time getting financed.
Side note: Bank financing is not the only way to get money for your deals.
Good luck Jeffrey.
Keep those posts coming…
Peter
Lori,
Pay attention to what I am about to tell you…
It looks like one of your problems is marketing. I know it can cost you a lot of money to do newspaper ads, bandit signs, mailing letters and postcards and so on.
I am here to help you. I will show you how you can use the power of the internet to get those leads. Believe me, the cost to do internet marketing is less that your typical marketing.
I hope you saw my ebay video where I showed you how to get leads for as little as $10 per month. I know you can do that.
I also mentioned one other powerful site at the end of that video that you can use for free to drive many leads. if you haven’t seen it, go watch it right now.
There will be more videos and tips coming in the near future so stay tuned.
Peter
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