|
What makes a Smart Investor in Today’s Market
Understanding Macro-Economic and Micro-Geographic Real Estate Issues
-
For Macro-Economics; 10 to 20 years is short term
-
Real Estate is a dynamic market influenced by many factors, primarily by its micro-geographic area
-
Specific Business cycles have 6 to 10 year curves, applicable to the real estate market
-
Most news in newspapers are about short term movements of the market, not long term
-
Most official reports must keep public optimistic about the future
We are in a Recession; Indicators
-
Depreciation of residential real estate assets
-
Turmoil in wall street, billions of dollars lost in bad debt
-
Too much liquidity and lost of confidence in borrowers
-
Inflation, rising fuel and raw material costs are cause for concern
-
Problems of financial and real estate markets will slowly spread to other areas in the economy
Facts and Opinions
-
We are only at the beginning of this real estate recession
-
First residential, then retail, and other areas of Real Estate
-
There is no more sub-prime lending, reducing the demand for real estate products
-
Banks will have difficulty creating “Mortgage Back Securities” and derivatives, thus, reducing the liquidity in the market. As institutional lenders loose credibility, other markets will be affected, such as commercial real estate as we see it in current news
-
My opinion in March 2008: this real estate down cycle will be felt for the next 5-6 years, bottoming out for another 3-4 years and then we will see a new bull market
Today is our Opportunity, Execution is the Key
The Opportunity (For the Small Investor)
-
As more people loose their house and there are no loans, the bigger the opportunity for the investor who is liquid and has good credit.
-
Families in trouble need a place to live and a new opportunity; creating a huge market for rentals, rent to own and owner finance deals. The residential market has changed for short term deals to long term holdings.
-
Banks will always have money to lend to Investors who have like-cash assets and keep up with payments and debt obligations
-
There are many foreclosed houses in the market creating pressure downwards as far as sales prices.
-
Two key aspects: Houses that can be bought with huge amounts of equity (Supply) and many families needing to rent (Demand). The rental market is increasing, creating upward pressure for fair market rents.
The Strategy
-
Buy only REO and Government Owned properties at 65% to 75% of ARV (After Repair Value) minus Repair costs. Actual purchase would be 40% to 70% of appraised value.
-
Investors must be careful; 90% of wholesale properties are bad deals; mainly because the owner wants to maximize sales price. Also, pay close attention to the condition of the house and the neighborhood.
-
Time between purchase of the property and exit strategy most be a maximum of 2 months; right short and long term finance.
-
Investor should create a portfolio of 10-20-50 properties in the next 2 to 5 years and focus on short term positive cash flow.
-
Execution: the opportunity is today. Real estate millionaires are made in recessions. There are deals happening this week.
Also See
|
|