I would like to start wholesaling probate real estate through options or assignments. I’m reluctant to start doing this due to the overall increase in housing inventory. From what I’ve read, inventory has increased to 8 months, and the experts are calling for an additional 800,000 to 1.5 million homes being dumped on the market in the next two years.
My question is to the experienced investors in this forum. How is the tanking market affecting your business? Would you recommend anyone new to start investing at this time?
I believe that it will be VERY difficult making a living at wholesaling, rehabbing, or flipping over the next few years. The glut of inventory on the market will greatly reduce the demand for housing and prices will almost certainly fall. In addition, I believe that we are in for a significant recession.
That is not to say that a person won’t be able to do individual deals and make some money.
I think that the rental market will do well in the short term as people lose their houses to all the gimmick loans that were written. In addition, the democrats coming to power means that a lot more money will be spent to provide housing to all the victims the democrats like to create. Many of the retiring baby boomers will also be forced into rental housing.
So far, I’m seeing a lot of new foreclosures and REOs entering the market and prices are starting to fall. The number of tenants seems to be mildly increasing and rents are firming up a little.
In the Phoenix area, we’re getting hit hard as you noted in your recent response. However, I wondering if now isn’t a good time to take advantage of all of the fallout from the bad loans? I realize that I may have to sit on property for awhile, but there are some really great deals out there. Unfortunately, the rental market is poor as well. But, I do see niches available in the market for quick resales as long as the resale prices are a few points below surrounding comps. Please tell me what you think of my ideas. I’ve never invested before, but I’m finally in a position to do so, but it would be with borrowed funds. Thanks, Rick.
There is no time like the present to start investing. If there is still one person in your market making money in real estate, then you can to.
To answer your question about the tanking market and its effect on my business. I hope the market tanks from here on out. Because so many investors are fearful of the “Tanking Market” demand for homes has gone down tremendously while the supply continues to rise, causing prices to plummet on the homes that I am buying. This enables me to get tremendous deals on homes, rehab them, then sell them. Essentially I buy really low, fix, and sell low. Instead of the usual buy high, fix then sell high.
From my own experience when the market was “Good” profits in my area were severly limited because of the amount of investors buying, many times clients would bid on homes that profit was limited to $8,000, and they would still lose the bidding. Now that the market is “bad” those same homes can be picked up low and sold low for profits in excess of $15k-30k (were talking about homes that only cost 20-30k, I have had a couple that were 100% cash on cash return in 5 months)
As with anytime, educate yourself on the market and its direction, but dont get frozen in education, until it becomes paralization.
The “trick” in a declining market is that you MUST buy at a BIG (huge) discount and then be able to sell quickly at a price significantly below market. Remember, comps are historical data and in a falling market will be higher than today’s sale prices. Selling only a few points below comps may not be good enough. As the market declines, it will overtake your price and suddenly, you’re in a game of trying to lower your price faster than the market. Unless you’re extremely aggressive, you can easily lose money in these situations.
If you buy at a huge discount in any market, you should do fine. Therefore, the key is to do the hard work of finding a desperate seller and buy at a huge discount.
The profits per deal in a declining market will generally be lower than in an appreciating market. The reason is that the price is declining during the period you are holding the property for sale, while in an appreciating market the price is increasing during the holding period.
In short, buy at a Huge discount, sell significantly below market, and SELL FAST!
Definitely the way to go. I am trying to setup a time to see one that is being offered at $120k and saying they will take offers below that. Comps are $160-170k with a recent sale just 1 month back that was $161,500 that is 2 doors down and the exact same size. I could turn it around for $160k if I wanted to wait but I’m looking to offer $110k or so and get in and get out fast with a pricetag of $140-145k. In this area that’s a great price for a 3/1 starter house and it will move FAST. I am not looking to sit around and let the market drop will I wait for a bigger offer.
Right now I am trying to put together a deal where the comps are $400K and they are willing to go lower than $249K. I am going to offer $220K and see if they will bite and if they do I will turn around and sell it for $265K…much, much less than a comp of $400K that was just sold last month only two houses down. I agree…buy extra low and sell low.
Excellent advice, all of it. But remember, WE are feeding a failing market here. I agree with everything you’ve all said, however, you have to watch what is going on with the BIG picture. Dumping these homes brings down comps and whether we do it or homeowners do it, it IS HAPPENING.
This strategy is EXACTLY what will cause this market to accelerate it’s fall, people selling (or dumping) these homes. Yes, you can make quick money but this thing has a LONG way to fall and these methods will insure that it does. Don’t get me wrong here, this is THE ONLY way to flip houses now. Just keep the big picture in mind. Somewhere down this road you guy’s are going to want to KEEP some of this stuff, you’ll be retiring on it 10 years from now if you do. My barometer is average prices falling to a point were rents come into line with FMV. That will be the bottom.
The only reason I say this is reading these forums gives you great perspective on the EMOTION of a market, right now it’s pure FEAR!
That’s good, it makes people do things they ordinarily wouldn’t. Add to your cash because this train is just started down hill.
Be patient, make the short money now, then be prepared when a KEEPER comes along.
Keep in mind that some markets are not going way down because they never went very far up. Here in mid - Michigan , the market is soft and prices have fallen , but not significantly. Of course, I am referring to my immediate area ( Midland - Mt Plesant) . Most of the deflation here is caused from poor economic conditions and not the post over - heated housing market syndrome. I would estimate that prices have dropped about 5% (on average) for middle class homes.
Here in Los Angeles the market has a terrible clash of forces. Prices have been holding and even up on the fixers, REO’s and Probates as if there is no tomorrow. People are still buying the low ends and the entry level homes and there is no end in sight.
On the high end of the scale, the prices are dipping like a melted butter because no one is buying these overpriced homes. Homes on the low ends are rising while houses on the high side are not moving. WHAT A GOOD COMBO!
Result, the Investors are knocked out 1st minute of the first round by regular homebuyers because they don’t carry overhead cost and a need to margin for profit.