As the real estate bubble popped everyone headed for the exit signs. Deleveraging began in earnest. Values dropped, prices dropped, and in some overbuilt areas rents dropped. Defaults climbed and the foreclosure mess began in earnest. Although market correction will continue in some markets other micro-segments may be oversold. If you are very selective in your search you may find that it’s a great time to place some bets.
As banks shed their bank owned properties it is possible to find massive discounts if you are careful in your search. 50% or greater discounts from the top of the market are available in some areas. Although discounts of that magnitude from the highs do not guarantee that the property will fall no further, some careful due diligence will help you uncover the gems.
My interest is not in the single family residential market. That market is overflowing with inventory in many areas and still carries a great deal of risk for investors. I prefer to scour the multi-family market looking for foreclosures, receivership situations and other turn around situations that may provide favorable buying terms.
So long as the property is in a strong rental market and the probability is high that with the right price and a little work and investment it can be turned around, it may be worth the risk. Do your homework when you find what looks like a gem. Be honest with yourself as to the risks. Then consider a measured investment.
If the deal is to big for you alone, or the debt you will have to take on because of a lack of capital is higher than you want to burden the property with, you might consider partners. Be very selective in who you partner with. That is as big a decision as what property to buy and what lender to go with.
One great thing about being a buyer now is that there are great loans available if you qualify. Of course, it may not be as easy to qualify as it once was. It’s tougher to get a strong appraisal as well. Most lenders want to see a strong balance sheet, a large down payment, and strong income before they’ll make a loan today. You will likely have to sign a personal guarantee as well. So, before you put any money at risk, make sure you know what you are getting into and that you have your financing lined up and have a good estimate of what your finance costs and requirements will be.
Imagine if you can buy a property that is 60 to 70% discounted from its high because it was repossed, yet it still has the potential to cash flow at a rate that justifies it’s previous high price. Couple that with a 4.5% fixed rate loan and you may have a cash flow dream that carries big long term appreciaton potential as well.
As our federal government spends itself into oblivion by incurring multi-trillion dollar annual deficits it will continue to choose to inflate the currency supply in order to fund this spending spree by diluting the value of the currency. Bankrupt countries often follow this foolish path. Unfortunately, America’s leaders don’t have the honesty or courage to level with the citizens and to cut spending back to a level below revenue levels. Governments also need to live within their means.
This currency inflation will likely, over time, push all prices up. First it will drive commodity prices, but eventually it will drive real estate. What is holding this real estate inflation back now is the inability of banks to find qualified borrowers. The credit expansion will have to start again before you can see growth in real estate prices in most markets. Jobs will have to be created before you can see a credit expansion (unless the banksters simply want to loan to any no-income, no-capital fool who walks through the door–and we’ve seen that before).
Even without a new credit expansion you can realize serious gains in this market if you choose well and buy below the property’s value as determined by an income valuation. That is the key to finding gems. Of course, you’ll want to be sure of the location and the local economy as well. There is money to be made even in this market using selective purchasing and low cost leverage. There may be an opportunity to buy low right now. Good hunting.
Investing in stocks, real estate, and precious metals is risky and could result in losing money. I am offering ideas for your consideration and education. I am not offering financial advice. Please do your own due diligence. I am not an investment adviser. Precious metals is not for everyone. I promote precious metals through American Gold Reserve. You should do your own due diligence when making investment decisions of any kind. You should consult your own financial advisers before making any investment decision. I make no guarantees that by following any advice or suggestion I might make that you will realize any return. Beware, all commodity markets and other markets carry risk of loss.