Is The Party Over for Investors Now That The Homebuyers Tax Credit is Expiring?
You would have to be a total disbeliever not to acknowledge that the Home Buyers Tax Credit in both its iterations had a positive impact on the first-time home-buyers market. The effects are measurable both in terms of the number of homes selling and price increases in almost every market.
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For every investor buying, renovating and selling properties, it has been like one big party! One where the sponsor (Government), the guests (you and I) and the drink of choice (renovated homes) were all available to make for one hell of a good time, not to mention some great profits! And with the expiration of the Home Buyers Tax Credit, our party may be over!
Challenges we will face in the coming months.
There are a variety of challenges that that every rehabber must adapt to in order to prosper as the market adjusts to the post tax credit era. These challenges include:
- The tax credit pulled many home buyers into the market early. Buyers who would otherwise have purchased in the next 3, 6, 9 months from now, moved into the tax credit enabled market and made their purchase before they normally would have.
- FHA still has not implemented their new rules; when these new rules go into effect the number of qualified buyers in every market is sure to be diminished.
- The unemployment rate, while stabilized, will not be moving downward rapidly enough to bring an equal number of buyers into the market to replace those discussed in item 1 above.
There are probably more items which will impact rehabbers in the coming months, however, I don’t want to depress you further.
What I want to focus on is how to position yourself to profit in the coming months.
The first thing you should do is read this great article 8 Rules For Flipping in 2010 by J. Scott. This article lays out 8 must do actions that every investor who sells into the home owner market, should incorporate into their business plan – now!
In addition to rehabbing, now may not be a bad time to consider shifting your business plan to focus more on rentals. In spite of the tax credit, overall home ownership rates have dropped to 67% or the same level they were at in 2000. In addition, vacancy rates appear to be stabilizing which means rents will be hardening.
Couple this with the unabated number of foreclosures now and anticipated in the future, keeping purchase prices low, it is hard not to see the financial benefits of owning rental properties. Lower cost of entry, stabilizing vacancy and rental rates,and built in equity — what’s not to like?
So… Is the Party Over?
No. I don’t think so. Maybe the sponsorship has changed. Perhaps some of the guests have left early. Maybe even the drink of choice is no longer as popular… but the party continues.
Don’t miss out!
Photo: Pink Sherbet Photography