Hey Guys,
What type of adjustments/ changes should I be looking to make regarding investing & managing investment properties during this economic environment? I feel I should be buying when everone's selling. My criteria should not change. I'm just unsure of the best actions when the economy is down. Thanx.
Well, your instincts are correct. When there are more sellers than buyers, the buyers have the advantage - hence a Buyer’s Market.
Also, you should get educated on the current mood of lenders in this market. It has changed drastically and loans are harder to qualify for - especialy for investors. Talk to several prospective lenders to get a feel for their minimum requirements for lending and compare rates, terms, etc.
Like I said in my other post, you should be prepared to have a business plan. It’s the old fashioned way we investors used to get loans for our investments and it’s going to make a comeback as lenders tighten their standards.
I’ve also heard where some landlords are raising their rents in response to the increased demand. Do you guys think there will an increase in rental property investors? I just haven’t been investing long enough to know see what happens in a down economy. It appears that the strategies the veteran investors use in a good economy also work in a bad one. In fact, it seems the savvy investors actually welcome times like these. I assume that owners of rental properties do well. Is there anything that rental property owners should be doing with the properties they currently own?
I can only tell you what’s happening in MY market. So here goes…
I’m in the Southern New England, the rental market is actually depressed up here. Homes that would have SOLD in a normal market are being rented. This adds to the available rental inventory and actually has caused rents to fall. We also have another issue here that I would STRONGLY suggest you look at in your local market. During the BOOM years we had BOAT LOADS of condo projects built. A lot of these projects are complete or nearing completion.
The original idea was to SELL these condos, THAT ISN’T HAPPENING!! So they too have been added to the rental inventory.
How bad is it??? The median price for a single family HOME (3 bed /1 bath, in a decent neighborhood) is around $230K here. You can RENT the EXACT same house for $1200/MONTH!!! Think about that…NO TAXES, NO INSURANCE, NO MAINTAINANCE, AND…Your rent is about half the monthly payment compared to a mortgage. The theory that Landlords are going to be stuffing their mattresses with money during this down turn is NOT the reality up here.
Let’s step back here for a moment…we have FALLING home prices, a economy in recession, tighter lending standards AND THE MOST IMPORTANT THING…Everybody who COULD buy a home, HAS bought ALREADY!!!
I know, I know…there’s always NEW blood in any market but the reality is…
If you couldn’t get a mortgage 3 years ago when the banks were literally THROWING MONEY at home buyers, you sure as hell ain’t getting one now.
Another interesting fact…as these people lose their homes most of them STILL have JOBS. The foreclosures are a result of housing prices falling and ARM mortgages RE-ADJUSTING and people being so upside down they just walk away.
Want to get RICH off of this???
Here’s what I’m doing and why…
I am now a BANKER!!! Never thought I’d say that…
Think about it…These people lost homes because they used the WRONG financing at the WRONG time in the market cycle. Some of these people actually make good money. When their $1700/month mortgage TRIPLED and the house they purchased for $300K is now worth $220K they WALKED. What other alternative did they have at that point??? Can’t afford the mortgage, can’t refi because the house won’t appraise. I’m not saying it’s right, I’m just stating THE FACTS!
If you can buy houses in your area for 40 cents on the dollar DO IT and BE THE BANK. This is a CASH COW!!!
Here’s an example…
I bought a 3 bed, 1 bath ranch house for $45,000 CASH, I put $10,000 into it so my total is $55,000. the house is worth $195,000 but buyers are having a tough time getting financed. So I BECOME THE BANK. I require a $10,000 down payment They pay 10% interest on the mortgage and the house is THEIRS. The payment is fixed at $1624/month (10% for 30 years)
or $19488/year or $584,640 over the life of the loan to ME (so in a little over 2 years ALL my money is out!) Because THEY owen it, THEY pay the TAXES and INSURNCE. I do carry a small catostrophic loss policy on the home to protect me ($300/year) And if they don’t pay I FORECLOSE and do it ALL OVER again. I fund this by Flipping some of the houses I buy and that provides funding for THE BANK OF PETE. BEAUTIFUL!!! A few more (I have a few already) of these bad boys and I’ll have a $200,000/ year income as a BANKER!!! WOOO HOO!! And my high school teacher said I’d never amount to anything!!!
NO TENANTS
NO REPAIRS
NO LEASES
NO AGGRAVATION
Pete, that’s a smart strategy. For those reading, that is not something you can do unless you’re buying cash and you have more of where it came from in the bank.
Here’s a little of what I’m looking at - I buy, rehab and flip. While it’s on the market, I’m running ads for rent to own and collecting names. If it doesn’t move in 90 days, I put a tenant/buyer in their on a rent to own with 2-3% down. Since I’m a mortgage broker, I screen their credit and income and make sure they are not too far gone to qualify for a loan in the future. As soon as they’re in, I get with my credit repair contact and fix their credit and boost their score in a matter of 60-90 days. It costs me around $1-2k, but I can afford it since I’m not paying a realtor 6% and I can get full retail value since they can’t buy anyone else’s house. Once their credit is fixed and their score is up (60-90 days), I FORCE them into buying me out with their own mortgage loan, most are glad to get their own loan. My mortgage office does their loan (I get paid), and they buy me out for full retail value (I really get paid). They own the house, I’m cashed out and all in all, it took an extra couple months, but I made approximately 6% more than I would have the other route.
By making sure I get around 3% down, and screening their credit, I can make sure that with a little help - they can get an FHA loan in the future. It helps to be on the mortgage side and have the credit contacts that I do.
In my local market, there are a lot of condos being built. But they’re being bought by a lot of peole who want a second home in the summer. I live in the Berkshires (Western Mass.). The homes are not losing much in value. The houses that have sold have been about $5000 - $10,000 under the original asking price. It;s taking about 8 months to a yr. for homes to sell. I’ve noticed an increase in homes for rent, but they’re either dumps or the nice ones are over $1200/ mo. for a 3 bed/2 bath. There are plenty of duplexes around but they’re still a little high for an investment. They may be better for an owner occupied. I’ve talked to some mortgage brokers and they’re loaning to investors for 10% NOO (1-3 units). The 4 plexes are requiring 20%.I’m told the down payment requirements will go up by 5% if the market declines.
Stevie-o,
You got me beat…Man, that’s the way to go!!! Your not only repairing these people’s credit, your getting them into a home they would have NEVER had a shot at. All while making more money for yourself!!
That’s as good as it gets!! :beer
It’s a good set up, but I have to make sure I get the right people in to start, otherwise it takes longer or I get stuck with someone that’s in my property for the full 12 months. And even though I keep their non refundable deposit after the 12 months if they dont’ buy, it sucks b/c then I have to start over again.
All in all, it’s okay; but I don’t like the time it takes to make it happen. But that’s why its my exit strategy. Maybe once I build a FAT bank account, I’ll use that as my primary selling tool because of the higher yields it returns.
That’s what I thought might be happening. Sure, houses are cheaper, but a lot of people might be trying to rent now, causing rents to fall, especially if there are more houses than renters.
So I BECOME THE BANK. I require a $10,000 down payment They pay 10% interest on the mortgage and the house is THEIRS. The payment is fixed at $1624/month (10% for 30 years)
or $19488/year or $584,640 over the life of the loan to ME (so in a little over 2 years ALL my money is out!) Because THEY owen it, THEY pay the TAXES and INSURNCE. I do carry a small catostrophic loss policy on the home to protect me ($300/year) And if they don’t pay I FORECLOSE and do it ALL OVER again
Loan to own you dirty dog…I love it…
For those reading, that is not something you can do unless you’re buying cash and you have more of where it came from in the bank.
Actually, you can. There are a few different options out there, though primarily you’d be able to sell via a wrap or CFD and still have an underlying note against the property.
stevie-o, I’ve been doing L/O to mortgage conversion for a number of years now, basically as you’ve outlined. I am curious how exactly you FORCE a T/B to convert to a mortgage once qualified.
Raj
Now is the best time for investors to buy - we can get properties for pennies on the dollar, and you don’t even have to buy the crap houses. You can get a steal of a deal on a nicer home which makes an investor job easier
Yes, great time to buy. I buy rental properties and don’t flip. I put 30% down or more and make sure I cash flow on the investment. The numbers for this type of investing have never been better in my neck of the woods - Las Vegas. Rent rates are rising, but it’s mostly due to the population growth and movement of jobs into the area.
I’ve got tons of tenants and a couple of very good prop managers. I rarely have aggravation or head-aches with the tenants. (HOA’s, however are another story). I am considering owner-financing a couple of properties that are now free and clear and selling to the renter. I’m just waiting to see how much worse the mortgage market will get, so I can charge a good interest rate for the owner financing.
Well I guess I can’t put their hand to the paper and make them sign. The difference is, is that I am actively involved in their credit repair and paying for it to make sure it happens, and I am actively involved on the mortgage side of it too. By “Forcing them”, I mean that I don’t just sit on my hands and keep telling them to fix their credit and get with a mortgage guy. I am the credit and mortgage guy and I make it clear up front that we will begin the credit process immediately and as soon as they can qualify, the WILL get their own loan. I push them all the way to it. Have you ever had someone that didn’t want to get their own loan when they were qualified? Usually it’s not hard when the mortgage payments will be cheaper for them than your rent.
Yeah, Steve, actually I have had someone NOT get a loan once we had their credit where it needed to be. And I don’t pay for their credit repair, at least not upfront. That’s entirely their responsiblity.
I suspect that there would be huge potential legal potholes in paying the expense to fix someone’s credit whom is in contract with you to buy your property as well as being the seller and the mortgage loan officer in the same deal.
Raj
I’m not the mortgage loan officer on the file - that would be a problem. Someone else in my office does the loan, but in essence I still get paid on it. And I don’t understand how there would be a problem with me helping my tenant get their credit fixed so they can buy my house.
I didn’t say that there WOULD be a problem. I said that I can see POTENTIAL problems, particularly when you, as the seller, are paying the costs of the credit repair upfront.
Just one of many possibles: You pay to fix their credit. It goes up. You ‘force’ them to go to loan/closing. It doesn’t work out (insert reason here). Buyer/client sues because they would have NEVER gotten the loan in the first place IF you hadn’t paid to fix their credit and they felt “obligated” to buy the property from you at that point (not to mention the “verbal” push to close the deal NOW). See how it could happen? :cool
Raj
I guess I can see what you are saying, and I’m sure with today’s people it could happen. But, I’d rather risk that then sit on my hands and cross my fingers hoping that their credit is good enought to buy a house in 12 months…
Here in the Charlotte, NC market everything is selling for less than advertised but not at a significant discount. I am also finding it geting harder to find good wholesale deals. I have been doing this for over two years now and it was going good where I was making enough to pay bills, keep business running, etc. Luckily I have all my rentals fully occupied so I am bringing in cash flow that way.
I hear ya on the wholesale deals…every investor wholesale deal I go see is always too much and too little profit. They all wanna “wholesale” me a deal that is around 75% ARV - not a deal IMO.