Ok, real estate is going down, but does it spell OPPORTUNITY?

Random Ramblings
1

I need some different perspectives here…

I have a good job right now. I’ve wanted to get into REI full-time for the past 2 years, but I’ve been doing it part-time w/ reasonable success.

Now, the world is saying BE GRATEFUL for having a job… and I agree. BUT, a part of me thinks there’s LOTS OF MONEY to be made in this market… my niche would be short sales, REOs, and distressed sellers as this market continues to plummet.

I have enough reserves to last at least a year without income (more than a year actually, but at the minimum a year). I’ve heavily debating to go into REI full-time some time early next year, and I’ll start building a pipeline of deals starting January.

My attitude is all or nothing right now. Sure I can hold onto this job and pay the bills, but I’d rather be on the grind finding and making big deals happen. I spoke to a guy just yesterday who made a $120k profit margin on a short sale. He had another deal which he kept for himself, that would have been $200k profit. (These are real figures, not inflated) Sure that’s not common, but it’s also not unheard of even in this market.

We all agree that RE is going down, but does this spell opportunity for a young guy HUNGRY to make deals happen…?

2

Put your paycheck in the bank and live off only real estate income for 1 year . You are ready to go full-time if you don’t touch the income from the regular job.

3

NJbird_dog - my take is that will probably be very hard for a new investor to get financing without a job. I have a nice job and just started investing. I was able to get financing because of my job, not because of the money I had saved. So before you decide to quit your job, think about how you are going to finance your deals.

The second point I would like to make is be careful with profits presented by other investors. Some times the numbers are inflated (sometimes they simply lie about the numbers, and other times they simply don’t account for all the expenses/costs). To be honest with you, in my short career as investor I only heard of $100k+ profits in commercial deals - I am not saying that they don’t exist in the residencial market, but I haven’t heard of any. And commercial investing seems to be a whole other ball game.

good luck!

4

I have NEVER understood these types of questions…

Why in gods name would ANYONE even THINK of quitting a regualr job to pursue REI in a market which is just STARTED it’s real DROP.

Think I’m kidding???

It’s aweful hard to buy a home with out a JOB. Jobless claims for the month come out tommorow morning at 8:30. I’d being watching that number if I were you. Expectations are for 350,000 jobs lost just in NOVEMBER. Total job losses for 2008 OVER 1.2 MILLION!!!
Job losses, unfortunately CREATE more job losses.

Sorry to be so rough on you…But in all honesty…I’d rather hit you hard here…where it costs you NOTHING…than to see you make a HUGE mistake at EXACTLY the wrong time.

Again…sorry for the bluntness.

5

No need to apologize… but what don’t you understand about it…

From your posts, I know you don’t deal with short sales or REOs… which this market is filled with. And I can name a number of people who work hard and are making a substantial amount of money in this market dealing with what the market is feeding us.

Deals are still being made… qualified people are still being qualified… and investors are still looking for deals.

On top of that, banks are becoming more flexible with short sales. Your average joe schmo realtor is now doing BPOs for banks on short sales… if you get the right agent and are able to influence him correctly… well then that over-inflated house that sold for $430k in 2005 can be yours for $215k and you can still find a buyer at $275k or $300k in this market, because there are plenty of people who were priced out during the boom and are now looking for a house. These are actual numbers.

The guy who made $130k did it on a property that cash flows. He found an investor whose focus is primarily around that one area. The $200k potential profit margin is unheard of… he did it on a newer house in a development where houses are selling for $475k-500k… all because of the BPO was probably a moron and the investor used cherry picked comps. Every deal is unique and very subjective, and the potential to make money is there.

I live near new york and what I don’t understand is… I saw on TV the other day that there was a job career fair in new york and people lined up for 3-4 CITY BLOCKS to try to enter this career fair. Most were obviously turned away. Now what on earth are the people at the end of the line thinking? “If I wait this long line, it’ll show the jackass interviewer that I’m persistent”?

My point is… there’s two sides to the story. The unemployment line will continue to get longer. But at the same time, the good opportunities will continue to show. In over-appreciated markets like mine (Northern NJ)… I’m sure there’s investors just waiting to buy property that can cash flow an entire $1000/month, because in the short time that I’ve been involved in real estate… it’s been mind boggling to understand the prices that multi-family homes were being sold for, even though they didn’t cash flow (thanks to ARMs). And I think there will be more cash-flow deals in the coming future.

So I think there are still deals out there to be made… and buyer’s looking to buy… if you take my above example with the house that sold for $430k in 2005… that house will sell within 5 days at $215k… I promise you that it will. Bank of America conservatively appraised it for $300k just 2 months ago, and they do mean conservative because they consider most markets to be in decline.

Now the real disaster would be if the market tanks so badly that the same house price drops to $150k… which just WILL NOT happen. If that happens… then the house will sell within a few hours. Why? Because at $150k it’ll be a cash cow and any investor with cash will pick it up.

So there you have it… a good deal is still a good deal… if I can get a pipeline of 10-15 deals by February, I will highly consider leaving my job and hunting for deals as the market continues to decline.

6

The great news is… I don’t need financing. I just bought my first home at a discounted price :biggrin… so I don’t need any type of conventional financing right now. And I’m not looking to finance properties, just to put deals together and let other people deal with financing. As for the huge profits… I know it’s uncommon… very uncommon… but I know this person very closely and the numbers are verified.

7

So EXACTLY how many short sale deals have you done and WHEN were they closed???

You say that YOU don’t need financing, you’ll just “put the deal together and let the other person deal with financing.”

Well SOMEONE needs to deal with financing in this scenerio INORDER FOR YOU TO MAKE MONEY. Saying “you don’t have to deal with it” is NOT reality!!!

Those job lines you saw in NYC are going to be a common sight in this country in 2009. The bottom line for you to get ANY deal done is…

SOMEONE NEEDS TO GET FINANCING!!! With less and less jobs…What do YOU think happens to home prices from here???

You are making a gigantic miscalculation here…Thinking that home prices CAN NOT fall below a certain level has been a SUCKERS bet for 3 years now. JOB LOSSES = FALLING REAL ESTATE PRICES… that’s a FACT. WE HAVEN’T SEEN THE WORST OF THIS YET. As a matter of FACT…The NY/ NJ areas have, (until now) held up reasonably well as far as real estate prices go…That is changing BIG TIME now. With the Wall St. BUST NY/NJ markets are getting slammed as THOUSANDS of Wall St. jobs go up in smoke. These jobs losses will have HUGE effects on RE prices because even businesses NOT tied to Wall St. will be affected. If you’re under the impression that prices in these areas CAN’T go lower…You need to do more research!!!

Why not just do your short sales PART TIME???..The risk to you is ZERO…Every single CENT you make can get rolled right back into your business and most importanty…You have SECURITY in a time when THAT commodity will be VERY HARD TO COME BY!!

Or…roll the dice just as we’re entering the belly of the beast. :shocked

Again…WHY all or nothing??? That is an abysmal business plan that almost GUARANTEES FAILURE!!

One last thing…HEALTH CARE!!! If your job provides you will good health insurance make sure you don’t forget to add about $1500/month to your expenses in your new venture.

Want to make a small fortune???

Start with a BIG ONE and then get hurt or sick without health insurance, and that BIG FORTUNE will turn into a small one… OVERNIGHT!!!

The bottom line is this…

You’ve done NO PLANNING for this venture…Talking to other real estate investors about the money they’ve made on deals is like talking to fishermen about the “bigones” they’ve caught. I’m not saying you were lied to, but I sure as hell wouldn’t bet my economic future on a few short sales I’ve heard about. The one thing I can tell you about these deals with no doubt is this…

There is ALWAYS more to that $100,000 profit story than your getting.

I can also GUARANTEE you something else…

Once that BANK see’s that transaction you used as an example…The “moron” realtor who did the BPO that was $100,000 lite will have done his LAST BPO for that bank. These transactions are listed in your local newspaper. The Bank WILL see that transaction and someones JOB at that bank could possibly be at risk for a screw up in the 6 figure range.

Good luck…This is all just my opinion…but I must tell you… I have seen this tried, this way, OVER and OVER and the end result is always the same…BUSINESS FAILURE!!!

8

FD, actual number even worse: 533, last number revised down from 240 to 320!!! Must be great to own those put options :biggrin Well done!!!

9

[quote]The great news is… I don’t need financing. I just bought my first home at a discounted price … so I don’t need any type of conventional financing right now. And I’m not looking to finance properties, just to put deals together and let other people deal with financing. As for the huge profits… I know it’s uncommon… very uncommon… but I know this person very closely and the numbers are verified. [\quote]

NJ - what will you do when the end buyer’s financing fails the day before the closing? Are you going to walk away from the transaction? I met few wholesalers in my short investing career. One of them stand out - he basically told me that he doesn’t like to buy properties himself. But whenever an end buyer can’t close he always close the transaction himself. He has been doing this for several years now. He has more than 10 properties that he is now renting because his end buyers financing pulled back too close to the closing date and he didn’t have time to get another one.

In regards to the uncommonly huge profits. Why would you base your business plan in uncommon transactions? This would be similar to a retailer basing their daily inventory needs/purchases on the sales after Thanksgiving. It is good that you recognize that those transactions are uncommon. I believe the next step is to disregard them in your business plan and use regular transactions that you will be able to replicate more frequently.

I still feel you may be making a big mistake quiting your day job. I agree with Jake’s comments.

Good luck!

10

All that really needs to be said is ditto to Jake’s posts.

Bottomline, you’re going to do whatever you’re going to do. You’re already leaning to quitting your job (BIG MISTAKE), so why even ask the question if you’re going to argue with the answers?

You might also want to keep in mind that this isn’t Mom and Dad telling you “you need to keep your REAL job,” it’s PROFESSIONAL, EXPERIENCED RE investors saying it. That should turn on the little light in the head there.

The worst thing I ever did was quit my “real” job for REI, even though I WAS making more in REI than it. Banks don’t understand self-employeed very well. Makes it very hard to get ANY loan. Don’t think you’ll need financing, EVER? And that was in the heyday of “if you’re breathing, you’re qualified.” Now, not having a job is the deathknoll for financing.

Raj

11

I don’t understand why my post above showed all within the quote. I am not sure how to fix it… but here is the post as it should have been published…

The great news is.. I don't need financing. I just bought my first home at a discounted price ... so I don't need any type of conventional financing right now. And I'm not looking to finance properties, just to put deals together and let other people deal with financing. As for the huge profits.. I know it's uncommon.. very uncommon.. but I know this person very closely and the numbers are verified.

NJ - what will you do when the end buyer’s financing fails the day before the closing? Are you going to walk away from the transaction? I met few wholesalers in my short investing career. One of them stand out - he basically told me that he doesn’t like to buy properties himself. But whenever an end buyer can’t close he always close the transaction himself. He has been doing this for several years now. He has more than 10 properties that he is now renting because his end buyers financing pulled back too close to the closing date and he didn’t have time to get another one.

In regards to the uncommonly huge profits. Why would you base your business plan in uncommon transactions? This would be similar to a retailer basing their daily inventory needs/purchases on the sales after Thanksgiving. It is good that you recognize that those transactions are uncommon. I believe the next step is to disregard them in your business plan and use regular transactions that you will be able to replicate more frequently.

I still feel you may be making a big mistake quiting your day job. I agree with Jake’s comments.

Good luck!