We are now at Stage One of the five stages of the real estate cycle – “The Bottom” – as I mentioned in my previous post. Below are strategies savvy investors employ to take advantage of market bottoms.

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During the bottom, you have to take what the market gives you; the correct strategy now is not the same as four years ago when prices were crazy high.  National home prices were up a record 15 percent in one year, loans were easy to get and housing was getting progressively more expensive. Now we are getting loads of cheap houses in a market with hard-to-get financing.  

Here are 10 ideas for you that I’ve seen work the best during market bottoms:

1. Bank broker relationships are key. If you are an investor, knowing REO brokers that control the inventory is vital. Fannie Mae-approved brokers are best because Fannie Mae has the most distressed inventory.  Also, young and hungry Realtors that can make a bunch of offers for you on possible deals will be helpful.
2. Deep discounts are to be had buying in peripheral areas.
3. Buy FHA non-compliant houses. Junker houses in bad shape that do not meet FHA standards of habitability are opportunities for smart fix it flippers.
4. Buy cheap condos (watch out for broke HOAs). Foreclosed units in a project means homeowner dues do not get paid. If you are smart there is potential there.
5. Contractors can add square footage cheaply. Adding the right renovations means you can get a lot of bang for the buck. For example, we recently added an extra bathroom on a three bedroom one bathroom house.
6. Flip your business. Real estate professionals starting their own businesses during hard times sell them at the top.  During the last three years of the up-cycle, mortgage companies, small builders and real estate brokerages were bought by bigger companies who overpaid.
7. If you can qualify for a bank loan, buy as many properties as you can to keep and rent them out. You will not regret it as rents rise due to inflation.
8. The market has been re-set (move up and executive home buyers are gone for awhile). The move-up market is seeing lot of problems so there will be great discounts in high-end properties. Jumbo loans are scarce to come by; this is a riskier game since the dollar amounts are higher. You will need cash for staying power.
9. Escrow fallouts are hot. If you are a serious investor, let the REO agent controlling the transaction know. Lots of deals don't go through and wouldn't you like to get that phone call for a bargain deal?
10. Bottom fish the MLS. First-day listings that are bargains last a half-day so you gotta be nimble and you gotta be quick. The listing broker can be your entry to an excellent deal.

 
When I became a mortgage broker in 1990, I thought I found a new way to print money. It was easy for me to collect four and five-figure commission checks, or at least it was at first. But I wanted more. I wanted to become a real estate mogul, a tycoon sitting on an empire of real estate built on strategic acquisitions. I am not saying that that I achieved all of that, but I continue to be a big believer in the rebound of California real estate.

I started buying single family houses in the 1990s during the last time we had so many REOs and here we are again. I truly believe that if you find a residence that is priced under market or if you buy a house where the rents cover the cost of owning, you will be amply rewarded. This is the bottom and you will be glad you took advantage of it.

Photo: Dimitris Siskopoulos