Slump Busters

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Ten outstanding tips to get you through the real estate crisis

Though investing in real estate is harder now than in years past due to the continued mortgage crisis and ongoing credit crunch, savvy investors are deploying several business tactics to reap profits during this transitional economic period. Below are ten proven tactics that can immediately be infused into your new or existing real estate investment business to help you protect losses and enhance your enterprise’s profitability.

• Use the Multiple Listing Service (MLS) to buy…and to sell. Banks are continuing to list their foreclosed homes through REO (Real Estate Owned) Agents – providing a goldmine of deals for not only investors, but owner occupant home buyers as well. First time owner occupant home buyers most often rely on the guidance of a Realtor for their purchase.Investors who can buy low, rehab cost effectively, build in better amenities than other homes in any given area and then list the house on the MLS with a reputable real estate agent while keeping it priced noticeably under market value will have greater ease when it comes to selling in this market – especially to new owner occupant homebuyers which make up the driving force behind today’s real estate market.

• Develop a broader range of financing methods and market them creatively. Many investors use only one investment technique to make money, despite the constantly changing real estate and financial markets. For capital gains investors (i.e. “property flippers”) it’s important to remember that creative marketing attracts your buyers; and your buyers are what keep your profits rolling in. Change things up a little bit and creatively market to renters who wish to make an eventual home purchase. They often buy from investors at full market price (through a lease option or rent to own program utilizing some form of seller financing you provide) because hardly anyone gives them a chance to be homeowners. You can also creatively market to senior citizens so they can use reverse mortgage financing as the finance method to cash you out of a deal. If you are into a deal at a low price, you can sell to another investor who doesn’t have the means to rehab but wants a good rehabbed house to hold and rent to a tenant. You can also buy really cheap houses and sell them wholesale to other investors without performing any rehab at all. You can also be a million dollar middleman (MDM) and limit your risk by selling houses other people own. Remember that as a seller, you can set the terms of the deal. One talented investor we know buys homes in bulk fashion, sets down payment and move in terms and puts the burden of rehab on his owner occupant buyers. This is an excellent method in urban areas where homes are cheap, rehab is needed and buyer down payments are hard to come by.

• Sharpen your landlording skills. Sooner or later you’ll get stuck with a house as a result of a bad purchase and have to hold on to it. This is happening now more than ever before. With a scarcity of mortgage loans for potential buyers and a higher probability of being overleveraged due to depreciation, many investors can’t sell their investment homes even if they have interested buyers. If your intentions are to buy homes to flip, you may be in a spot having to rent your investments with no clue how to limit your risk as a seasoned landlord can. Contrarily, many investors are coming out of the woodwork right now to build a small rental house portfolio; are you one of them? When times improve, investors prescribing to this type of investment activity will be able to ride the wave of appreciation and then sell their investments for huge profits. Whatever your case may be, it is essential that you hone your landlording skills as a precaution so that your tenants can’t take you for a ride financially.

• Get licensed and create multiple income channels. Now is a great time to get your Realtor, Mortgage Broker, Appraiser or Builder license. The market will swing back and when it does, new rules and regulations will be in effect. With all the fraud committed before the collapse of 2007, the government has everyone under a microscope. Your licensing sends a message that you do business above board. Being licensed also lends credibility to you from the consumer’s lens. MLS sales dominate now as banks are relying on REO Agents to sell their foreclosed inventory. What’s more is that a huge percentage of new home buyers are relying solely on Realtors to assist them through their purchase. If you can add mortgage loan sales or home sales to your real estate business by becoming a licensed Realtor or Mortgage Broker, you’ll have new and risk free ways to make money.

• Create incentives. Many sellers are overleveraged and cannot sell their homes because the tedious and time consuming short sale process scares buyers away. However, by making wise purchases, there are things you can do to sell your equity bearing homes. If you’re a rehabber, build in better amenities than other homes being sold in your area and sell noticeably below their pricing. If you’re a wholesaler, give away a free house with the purchase of multiple houses from your inventory. If you intend to lease option a home or provide seller financing to a home buyer that can’t currently qualify to buy, how about no payments for six months to get them in the door along with free credit repair? The sky is the limit. The theme is simple though: do what other people are doing and you’ll get the same results they are getting. In other words: provide more incentives for your buyers and tenants and your results will be better than the results of the average investor.

• Grow your network. While many investors are taking a break now, there are still investors that are thriving. Get to know these investors and find out what they’re doing. Mortgage Brokers and Realtors are a hub of knowledge and can introduce you to many successful investors. REO Agents know who the savvy investors are because they are the ones coming back to buy more and more homes. Ask these agents if they can introduce you to these investors so you can find out what it is they are doing. You’d be surprised how eager other investors and real estate professionals are to share with you what is working for them and what is not.

• Money pools/credit pools/risk disbursement. Many investors lost a lot of money or had to walk away from their rental portfolio due to value decreases etc. Now is a great time to rebuild with the help of others who may have gotten spanked in this market too. Get a group of investors together and work cohesively as a partnership. With several members in an investment team, risk is minimized and everyone brings something different to the table. You may have lost your good credit, but someone else in the group probably has excellent credit. One member may have no money but another member may have solid liquidity for investment purposes. By sharing resources, you can move mountains.

• Master Credit Repair. Learning credit repair techniques and providing potential home buyers with this service can allow for financing that wasn’t otherwise attainable. During the mortgage boom years, it wasn’t uncommon for homeowners to have low credit scores, very little money in the bank, and be able to “state” their income to get a zero down home loan. Times have changed. Most lenders require at least a 640 credit score now. It is often okay if a potential buyer has little bank reserves as FHA loans often allow for a gifted down payment. The credit score is the key and if you know how to raise a potential buyer’s credit scores, you’ll have little trouble selling a deal and a lot of new referral customers as well.

• Tax reassessments. Houses that were selling for $190K are now selling for $40K in certain areas. That’s a big enough difference to march into your assessor’s office and request a reduction in property taxes. Your city will automatically reassess your home and hike your taxes as prices rise, but they mysteriously overlook your file when you purchase a home far under market value. Pleasantly remind them that taxes are proportional to a house’s sale price and current value. Perhaps you’ll be able to work something out. We have heard from many investors that the tax reassessments are working.

• Find and develop your niche. I know an investor that only used to flip homes to other investors at wholesale prices in urban areas. Now, he buys in suburban areas and lists his finished rehabs on the MLS far under market value. His buyers aren’t investors anymore but mainly first time homebuyers. He has a totally new system and has also found a relatively underutilized niche. He is happier now and even making more money despite this current market. You should try to explore all investment avenues in this market by networking with other investors or by trying new things to pinpoint your real estate investment niche.