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.
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:
- 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.
- Deep discounts are to be had buying in peripheral areas.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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?
- 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