What are the best ways to take advantage of this real estate situation?
Five years from now, everyone will look back at this mess…
WHO will be the ones that truly profited from all this & what are they doing right now?"
WHO will be the ones that look back and say “I wish I focused on _____”
PRESERVING WHAT I HAD!!!
Your question is great, the problem is this DROP has just started.
BE PATIENT.
We have just lived through an UNPRECIDENTED run up in real estate, the fall has JUST BEGUN.
The guy’s who will be successful will be the ones who keep their capital and are buying when NO ONE wants to We’re not there YET. But…we are closing in on it.
Think for a minute here people…Banks are getting HAMMERED with foreclosures. Do you think for one minute that these guy’s are going to loan us money in a few years when you tell them you want to invest in REAL ESTATE!!! They’ll be running for the doors. It happened in the 80’s I lived through it. You could have gone in there and told them you wanted to borrow money for a perpetual motion machine and gotten it easier than a real estate INVESTMENT loan.
NJREstudent posted a great quote from a Swiss Banker this week, search his posts. it’s worth it. That’s how bad I think it will get.
Keep your powder dry, and get ready for a BUY AND HOLD period. It will take 10 years for this market to come back, it usually runs that long in real estate. Be ready, it’s coming.
The most important thing is don’t get your self in trouble now!!! Short sales, flipping, these types of deals expose you to TREMENDOUS RISK in this type of market for much smaller upsides. BE CAREFUL, this is when investors can REALLY get hurt. The guy’s who will eventually win here are the ones who PRESERVE THEIR CAPITAL!!! You get tied up in a tight rehab or flip and your screwed in this market.
The guy's who will be successful will be the ones who keep their capital and are buying when NO ONE wants to We're not there YET. But...........we are closing in on it.Think for a minute here people…Banks are getting HAMMERED with foreclosures. Do you think for one minute that these guy’s are going to loan us money in a few years when you tell them you want to invest in REAL ESTATE!!! They’ll be running for the doors. It happened in the 80’s I lived through it. You could have gone in there and told them you wanted to borrow money for a perpetual motion machine and gotten it easier than a real estate INVESTMENT loan.
Pete…
I don’t get it.
If I’m reading you right…seems like your approach may well be to buy with CASH…if/when things get really nasty and lenders aren’t financing.
Where’s the leverage in that???
If I were to get into buy and hold rentals I’d want a zero down approach.
-Mike
You brought up an excellent point. I should have been a little more clear.
Imagine a time in the future where many, many banks have gone bankrupt because of loose lending on real estate. We can see that coming right now. It’s not a stretch. Law makers will futher tighten lending standards in an OVER REACTION to the crisis. We’ve all seen this movie hundreds of times. When something bad happens the pendulum swings too far trying to OVER compensate.
In this kind of enviroment who will the banks loan money to???
The answer is people with PROVEN track records. Think about it, the only guy’s buying with NO MONEY down will be the ones that the banks have CONSISTANTLY made money with. These investors buy at DEEP discounts and really KNOW how to run a rental business. Let’s contrast this group with the new guy walking into the bank wanting to buy a 3 family for the first time?? Now remember Mr. Banker has seen his last bank go under because they made bad loans to niave investors.
This happens in almost every severe downturn in real estate. LENDING TIGHTENS! It’s a fact. We all know the old saying “Banks LOVE to lend you money when you DON’T need it”
My point was this…If your new to this, make sure you have a sizeable cash reserve. I know that’s hard to do, but I lived through this exact cycle in the late 80’s. Banks had NO interest in betting on NEW investors. You had to have a REAL down payment (remember those??) and be buying at a good discount to get them to even LOOK at real estate investment loans.
The problem here is that was 20 years ago… Think about it…If your 35 now you were 15 years old when this was going on. Real Estate for most 15 year olds isn’t high on the priority list. As a result people forget that this all has played out before. And I’ll be honest with you, in my opinion, it’s going to be a LOT worse this time around.
Another bank just this morning announced that they are INSOLVENT due to loan loses. We’re talking about BILLIONS and BILLIONS of dollars in losese here. It effects incomes, homes, pension funds, mutual funds, bonds, ect. We all saw first hand, how it effected the stock market last week!
My warning is this… Secure your lines of credit NOW!!! Build your cash positions, and your realtionships with different lenders. Go out TODAY and meet with some banks, explain your plan for buying during this drop, show them your track record and balance sheets, financing SHOULD NOT be a problem for you. The problem will come if your trying to do this when the sh** hits the fan. Like it or not these bankers are no different than “Joe public” when they get scared they pull down the shades to their lending windows. I saw this exact thing happen to the man who is my mentor. It was 1990 he was in the middle of a $3 million dollar shopping center reno. He bought it to fix it and hold it as a commercial rental. His bank took so many loses due to bad real estate they actually CALLED in his loan!!! If you guy’s read your fine print THEY CAN DO THAT, especially when they are trying to raise funds for their minimum requirements. He was screwed, but he had a fail safe, a back up lender, already set up, because he saw the writing on the wall. They took over his projects financing and he was OK. If he hadn’t done what he did, he told me it would have bankrupted him because NO ONE wanted to go near a half finished commercial real estate project at that time.
There are other ways to buy real estate than bank financing, we all know that. My warning is to people who think this isn’t going to get that bad. I honestly hope your right. But…I’ll make my plans thinking it will get much worse.
PLAN FOR THE WORST, HOPE FOR THE BEST!!!
Pete…
Thanks for covering this in greater detail…makes more sense.
I think you’re right on about establishing those banking relationships now.
Knowing and having relationships with 5 bankers now is a helluva lot better than doing a first handshake 9 months from now when you want them to look at some deal you think you can make work.
I know you’re not too big on Cramer, (CNBC), but his show last night was pretty good, (I actually think the guy is pretty sharp…although I don’t follow him for stock picks).
Anyways…he thinks it’s imperative that Bernake wake up from his slumber and lower interest rates a full point. Otherwise it’s the doom and gloom scenario.
Thanks again for the post.
-Mike
Jim Cramer made millions on Wall St. he’s a smart guy, no doubt. about it.
I just can’t believe some of his picks. But…if you have a show that’s built around 5 second sound bite stock recommendations, how good can the advice be? Jim’s done what a lot of real estate investors do…He found out it is MUCH safer to just sell INFO than fight it out in the markets. His show is highly rated and his www.street.com is a advertising cash machine. Don’t be fooled by this guy, his stock picking days are OVER. He sells HOPE now. That’s it!
The problem Bernake has is the U.S. dollar is in free fall right now. If he drops interest rates (which he needs to) he’ll BURY the dollar. With foreign countries financing the U.S. Goverment with the purchase of debt, this would create loses for them due to lower rates. Europe is actually RAISING rates now. This is attracting money from all over the world. Goverments chase rates too. Unfortunatlely this ties Benake’s hands somewhat. He needs to drop rates but REALLY can’t. Add to this his continued “everything is going to be OK” statements which are completely absurd and you have a recipe for very little faith in the U.S. abroad. Just when we need them most.
Read between the lines, it’s an old saying but it’s 100% correct. It’s not what these people are TELLING you they’re doing, it’s what they ACTUALLY DO that matters. When you have traders selling off assets at a record pace, the MARKET is SPEAKING. The little guy buys into the B.S. because they WANT to believe that it’s true. “Hey, this guy is really smart, if he tells me I should be doing this or that he knows better than me” THAT is a recipe for fianacial DISASTER.
When Jim Cramer tells me every month that he doesn’t own stock himself but his charitable trust does…that’s all I need to know!
I saw a VERY interesting interview with JIM at a Baseball game recently. It was very spur of the moment, a guy with a mic walked by Jim who was just sitting in the stands, and figured he’d get a quick comment from him on the game. He asked Jim a couple of baseball related questions then asked him ONE financial question…it was VERY telling…
“Jim what advice would you have for these ball players about stocks???”
Jim’s answer…“Stocks??? Stocks??? are you kidding me??? These guy’s shouldn’t go anywhere NEAR stocks, they should just put their money in bonds and keep it safe, that way they can sleep at night.”
A little different than Jim’s nightly advice for the minions, HUH???
NJbird_dog,
WHO will be the ones that truly profited from all this & what are they doing right now?"
There are individuals and companies profiting from todays market conditions. They are building lasting relationships with lenders and banks. Maybe not creative to our way of thinking, but no one could ever deny they are making money in today’s real estate market.
This method has made money through all markets from 500 BC, and still going strong.
Personally their method appeals to me when I need fast results.
John $Cash$ Locke
Well since you want to know what people are doing in the next 5 years let me give you a quick 5 yr plan for me.
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Now- Talking to a local investor that’s opening a Homevestors franchise, hoping to become a commissioned buyer for him. Going to use cash earned to pay down debt, save for future purchases and possibly take down a few buy/holds if they are at the right price (50 cents on the dollar).
Sept this year- Starting real estate licensing classes. Some people may think I’m an idiot for doing so but I have my reasons. Access to the MLS, networking, commission on my own purchases if I buy something that’s on the MLS, good lesson on local real estate laws for a damn good price, etc. Hoping to start selling a few here and there to supplement my income, pay down debt and stack cash for buying spree when the market hits bottom.
Late '08/early '09- Start more actively looking for buy/hold properties and purchase as many as I can while prices continue to stay low/drop.
5 yrs from now hopefully look back on all of the purchases and realize I have paid down good chunks of those mortgages and appreciation is coming back and giving me even more equity than I started with (since I would have purchased for 70 cents on the dollar or less).
5-8 years from now- Depending on when the market picks up start cashing out all of those held properties and move money into larger commercial properties.
Rich,
I personally think you’d do VERY well selling real estate.
I’ve been reading your posts for a long time, YOU will be EXACTLY the type of realtor this economy NEEDS now. Forget these nit wits who tell people what they want to hear. You give people an HONEST assessment of their property and it WILL sell.
Just a quick story here… I have a friend who NEEDED to sell his home, he found a realtor that didn’t BS him. this guy told him straight out…The market is going down every month, you can sign with some realtor who will come in here an tell you they’ll get you market price for your home. But I’ll tell you right now they don’t know what that number is. He recommended setting a VERY aggresive (low) price intially. That is exactly what my friend did. He signed with this guy and the first week his home was on the market they received 3 offers. ALL OVER ASKING. This while 8 homes remained unsold on his street.
He closed last week!!!
Hello All,
I am new to your site and this forum. It is exiting to see everyone planning the next move. Even though I am a newbie, I have owned and managed many apartments in the past. I sold my interest in the late 80’s and took a bath when all my paper went up in smoke. I took a different direction for some years while the wounds healed, but I am back, renewed and I can’t wait to make my first move. Thanks for all the great ideas.
Phil