Mortgage woes hit home buyers with good credit. (Wall St. journal article)

Check this article out…You can find it on Yahoo’s finance section.

For ANYONE left out there you STILL doesn’t understand the LINK between these Bear Stearns funds (and others) going under and Real Estate Investing maybe this article will help you.

Now the question is???

If banks are making it harder for people with GOOD credit to buy homes what does that do to pricing and our ablilty to make money? The happy, happy, joy, joy’s out there are going to get hit with a giant STOP sign right between the eyes.

It’s great news IF you’re patient. But you better be REALLY patient because we have a long way to go here. BAD if your flipping something you purchased 3 months ago. Or even THINKING of flipping a rehab.

Wells Fargo just upped their rates on level 1 credit scores for 30 years mortgages to 8% ,that’s up from 6 7/8 the week before!!!
Another BIG insentive to BUY??? Nothing like falling prices AND increasing interest rates to finish off the whole show.


You all know my theory. WAIT…IT’S JUST GETTING STARTED.

What am I waiting for? I guess if you are flipping (speculating) or rehabbing to sell you may have a problem. But as long as I can find companies to loan me mortgages I am going to buy as much as possible. But even if I am trying to rehab or flip, what am I waiting for?

Well I don’t know what you’re wanting for, but when I see homes sitting on the market for longer and longer, and prices falling faster and faster, I know I’m not doing to even THINK about stepping in front of THIS train.

If you buy them all up and rent them out you will be rich in no time.

I agree Bluemoon, and I think YOUR strategy is the ONLY one worth pursuing in this type of market.

The problem I’m facing in Southern New England is even the blowout bargains don’t cash flow. We had a price run-up here that had to be seen to be believed.

Right now a 3 bed 1 bath 900 sq. ft. ranch house sells for $250,000,
Even at a blow out price of $ 175,000 it still doesn’t cash flow because rents for that type of home here are about $1300- $1500/month.
Add in insurance, $2500/year for property taxes, plus all the other rental related expenses and you can see why I HAVE TO WAIT.
Prices ARE dropping and I hope to be in the same boat your in next year or in 2009.

We still have a long way to do here.

By the way, those ranch houses sold for $85,000 in 2001!!!

Can you find a house just like the one above but is a mess. Maybe it needs some cosmetic work or maybe a roof. Will this cause it to sell at a discount?

 In the early 1980's, in my area, the median income was around $30,000.  Median home values were $100,000.  Interest rates were in the high teens.  These are all rough values, but my point is this: people were willing to pay 19% interest on risky mortgages because inflation was driving the value of property up, and keeping money in property was a lot safer than keeping it in cash.  In my opinion, the markets behave in predictable ways oscillating, between boom and bust.
 I have to reiterate the question that Bluemoon submitted.  What should we wait for?  The Harvard Center for Housing Studies predicts that affordability will continue to be a problem.  If a $250,000 house drops in value to $125,000, but interest rates go from 6% (still a historical low) to 12%, the cash flows EXACTLY the same.  Why shouldn't one prepare in the valley so one will not be surprised by the man on the hill?
 My mortgage brokers are still willing to find loans with good (fixed) interest rates.  I wouldn't hold your breath waiting for cash flowing properties (100% LTV).  It happens in the rust belt, but the population of many towns in Ohio and Michigan is falling.  This happened in Texas when big oil had problems, people simply put their mortgage note and house keys in the mailbox and moved to an area of the country with more opportunity.

That’s my whole point Bluemoon, THAT $175,000 IS THE DISCOUNT!!!

These types of homes are on the market for $250,000, it’s getting slower and we’re starting to see some price weakness but $175,000 is for a DUMP! Even at $150K what the heck is it gonna cash flow after you gut it and do the required repairs??? And I know what I’m doing…My prices for remodels are a lot less than a homeowner would pay. So there in lies the story…I WAIT. Done it before, seen this movie in the late 80’s, this is a bad remake, same ending!!!

I’ve been doing this for over 20 years. I very rarely buy anything listed with a realtor, most of my homes come from the owners themselves. That way I’m the only one who even knows it’s on the market and can buy a BIG discounts. Not yet though. We’re getting there. But…our market just has a long slow grinding down turn ahead. There’s no two ways around it. I look at 10 deals a week, the last 4 months… NOTHING. ALL JUNK, none of it has sold, even though I told people it wouldn’t at THEIR asking price. People haven’t felt the HURT yet. “The HURT” is the best catalyst in real estate. It’s coming to a neighborhood near a lot of us shortly!

As far as waiting for prices to fall??? THAT’S EXACTLY what I’m doing.
So far EVERY MONTH we have MORE INVENTORY, LONGER SALES TIMES, and REDUCED SIGNS popping up like weeds on a foreclosed homes front lawn. To me it’s VERY OBVIOUS what’s happening. The market continues to WEAKEN. I could care less what some BOOB from Harvard who has never owned a rental in his life thinks the market is going to do. It’s all those “smart” Harvard Boy’s who are getting HAMMERED right now in the bond market because THEY thought it would be a GREAT idea to loan idiot’s money with bad credit history’s.

Again, there is nothing new here. People see what they want to see. HOUSING IS CYCLICAL!!! ALWAYS HAS BEEN, ALWAYS WILL BE! THE BIGGER THE BOOM, THE BIGGER THE BUST. And we just witness THE BIGGEST boom this country has EVER seen. No thanks I’ll sit on the sidelines and wait it out. I’m not about to buy properties that COST me money to own in a FALLING market. Thanks but I’ll pass.

I never try to tell a person that they can’t make money. Just because I don’t know how to make money in southern New England doesn’t mean it can’t b done. What I suggest is that you find someone that is making money and do what they are doing. I personally would make offers on houses based on what they are worth not what the owners are asking. What they are worth is a price that will cash flow. I would let the owners decide if they are going to hold the house month after month or sell to me (at my price) and stop the bleeding. I would then rent them out for a positive cash flow. If a house cash flows at $100,000 and they are asking $190,000 for it. I can’t pay more than $100,000 for the house. That is the ceiling of what I will pay. I don’t care what the market says. I can’t pay more than that. I would not sit out waiting. I would not try to time the bottom of the market. I would buy any and all houses that I can make cash flow. By the time the market turns around you could own half of the county.


You get it Bluemoon, AND you said it better than I did with half the typing.

THAT IS WHAT I’M DOING. Every one of those homes I look at has a written offer and a telephone number where they can get me.

Like I said and you said BETTER…They haven’t hit the HURT yet!!

Great post from a guy who knows his stuff.

When I say WAITING, that doesn’t mean DOING NOTHING!!! TWO totally different things. Still advertising like crazy, still looking at properties, unfortunately just not buying.

Had 3 GREAT years flipping homes. I had gotten out of residential rentals in 2004-05 because I thought prices were unsustainable (hey even a blind squirrel can find a nut once in a while) Built 2 self storage warehouses (beautiful business) now “waiting for the HURT”

FWIW, I think Pete is doing exactly the right thing. I believe that the prices in this bust cycle have just started to decline. As Pete has correctly said many times, all those gimmick loans haven’t even started to adjust in a big way yet. All those extra foreclosures hitting the market is going to drive prices down. The former boom areas have a lot of BUSTING TO DO! Prices will return to normal in those areas, as they always do. Holding cash is a very smart move in a bubble area.

What many people don’t understand is that the US Government is in a battle to keep the shell game going. There is nothing backing up the huge debt that is out there and the dollar is really worthless. Since we don’t manufacture anything here, we are depending on the consumer to keep things going. You can see the government’s latest shot yesterday when the Fed mentioning the possibility that the economy could worsen. They are doing everything they can to prop up the stock market, since the real estate market is in the dumps. The stock market is HOPING that things will be OK, but it can’t be because of the debt and the baby boomers starting to retire. It’s heading down, it’s just a matter of what day!


Mike, as always, couldn’t agree more.

In addition to what Mike said, I find it hysterical that Wall St. even THINKS the FED could lower interest rates here to bail everyone out in a joyous love fest of free money. You want to see what little foreign investment there is left go BYE BYE??? You just watch what happens IF Benny Boy drops those rates. That giant sucking sound will be the value of the U.S. dollar if a rate cut occurs. He’s between a rock and a hard place. Why should REI’s care??? Who do you think is funding all of this mortgage debt. It isn’t OUR citizens. OUR peole have a NEGATIVE .6 saving rate.

 N E G A T I V E    S A V I N G S   R A T E !!

THAT is the shell game Mike is talking about.

Well right now since its a crappy time to buy I’m all about getting my contacts in place and getting my real estate license. I’m first shopping for a 2 family for myself, looking for a big discount and a nice cashflow from the other apartment. After that I’m buying every rental that cashflows. I’m just hoping my local banks will write paper if I am buying at a low enough discount. I’m shooting for 50-65%, I don’t see myself having issues borrowing if I’m using local banks and buying right. Plus in the meantime I’ll hopefully be working with a local wholesaler/rehabber soon to generate some cash to pay down debt and build cash. I’ll probably end up parking the cash somewhere safe (non-volatile) until I need it. If I don’t come out of this owning at least a few million in rentals I’ll definitely think I’ve failed.

If anyone is fidgity and needs something to do while they wait to buy go out and get a real estate license or read some more books. Maybe spend time networking?

Edit: to be nice.

Ok Rainman.,2933,292780,00.html I know that this sub prime has caused a ruckus and people have lost jobs and companies have gone under. But you have to realize that the credit system is moving on. They may ask for more documentation or maybe more of a discount but we will be able to carry on our businesses. Subprime will not bring down the market, panic will.

You are exactly right!!! PANIC is the watch word.

“Today… DOW plunges 387 points as French bank closes 3 MORE funds which are worthless”

It recently occured to me that the word FUND is probably causing some problems for REI’s here. These are NOT Mutual funds that you and I buy. These are BOND FUNDS that invested in MORTGAGES THAT ARE NOW WORTHLESS!!! Get it??? WORTHLESS, as in gone, nothing, nada, zip, and who owned these beautiful little gems??? Why the GIANT BANKS that FUND our Real Estate purchases, that’s who!

“But I deal with a little local bank, my guy’s name is Joe. I’ve known him forever.” That’s great!!! glad to hear that. I hope “JOE” has a lot of cash because the guy’s who BUY Joe’s mortgages are GETTING KILLED ON WALL ST AND ACROSS THE PLANET EARTH NOW!!!

Personally, I could care less WHAT brings this market down. All I know is IT’S COMING DOWN!!! Harder and faster than anyone (even me) can imagine.

And you should remember 1 thing…


Let me repeat that… Take away, or severely damage a financing market for real estate??
And I don’t care how much you know, your gonna see a SUBSTANTIAL slow down in your business. Unless your sitting on rentals you purchased in 1991 you WILL feel this.

FOX news is not telling you ANYTHING, it’s a sound bite. Maybe, just maybe, that little street in New York, you know the one, with the big BULL. Just maybe those guy’s know a little more than FOX news does. Because after all THEIR LOSING BILLIONS RIGHT NOW!!! But I’m sure anyday now they all simultaniously snap out of their lost jobs, lost businesses, lost homes and lost careers and just BUY BUY BUY!!!

Yea, Yea, I know, we’re all gonna be Millionaires because we’re all going to be BUYING during this mess. Mark my words…This is a financial DISASTER in the making. The foundation of our business is shaking and people here are calling me rainman??? I LOVE IT. THAT IS what contrarian investing is ALL about. DOING and THINKING the opposite of what the CROWD does!!!

I sit here sometimes and read these posts and actually laugh out loud.
It’s unbelievable to me that Real estate investors do not see a correlation between a bond industry’s “run on the bank” and the future of our business.

I glad your optimistic. Hold on to that… Your gonna need it VERY soon.

I’ll sit by, on a PILE of cash and wait until NOBODY wants to even talk about real estate, then the “Vulture will fly!!!”
It flew in 1990-94…landed in 2004-05 on a huge nest lined with MONEY!!

But what do I know???

Rainman… Beautiful, absolutely Beautiful!!!

Bluemoon, none of this is an attack on you. You know your stuff, and Ihave NO DOUBT you WILL do very well during this down turn.

Love the new nic name…RAINMAN, Sounds so much better than petemfa!!!

Shouldn’t you just short the companies that are holding the most mortgage bonds then?


First, I’d like to say that I like your new nickname! I agree with your analysis, but I don’t think it’s coming down fast. All we’ve seen so far is a lot of volatility over the past two weeks. In my opinion, this is going to be a death of 1,000 cuts. As you’ve pointed out before, the big gimmick loan readjustments won’t even happen until next year. We’ve got a long way to go and the government is going to pull out all the stops to try to prop the economy up.

As I keep saying, part of the real problem is that inflation is rampant. I know this because I see it at the gas pumps, the grocery store, LOWES, etc. The government knows this, but isn’t willing to say so.