It’s no secret that the U.S real estate market is falling apart faster than you can say “Flip this house” five times fast. Having said that, with a few changes in your real estate investing strategies you can still make big time profits in this big time bubble burst market. Here are a couple of low risk, no money down strategies that have worked well for my clients and myself during this “Slow time”.
Coming from Michigan I am all too familiar with a crashing real estate market. It seemed like prices had hit rock bottom a couple years ago. Except things have continued to slide. Many of the homes in my market are selling for 20-25% of their previous highs, leaving over leveraged investors out to dry. So what is an investor to do?
1.Real estate wholesaling is still one of my favorite strategies in both good markets and slow markets. A property buyer leveraged wholesaler can make money in any market without risk or even the need for credit or cash. Many people mistakenly believe that since the market is in a slump that it would be nearly impossible to wholesale properties, however nothing could be farther from the truth. Investor dollars and great deals on real estate always find a way of coming together, so why not put yourself in the middle somewhere.
2.Lease options are another one of my favorites right now I believe we are in the middle of a perfect lease option storm. Desperate sellers will do just about anything to get their homes sold. Credit poor buyers will do just about anything to get their chunk of the American dream. Once again why not put yourself in between. Lease options offer you a fantastic way to clear large profits without cash, credit or risk. When our real estate market is flourishing then sellers don’t need to look at doing creative financing on their homes because there are a plethora of house hungry buyers. Having said that, in our current market approved buyers are getting more difficult to come by. With all of the changes happening in the banking industry, once worthy buyers are now unable to purchase housing because of a lack of funds, or a lack of credit due to our economic downturn. Sellers who are willing can greatly increase their chances of selling by offering lease options.
I will cover a couple more later on in this post but it would be great to hear some strategies that others have been using during our economic slow time.
The key to real estate is cash flow. If the value of your house goes from $1millon to $1 but the house cash flows $200/month. You still have a house that you can hold on to until the market comes back or you pay the mortgage down to a value that you can get rid of it without putting your own money into it or sell or refinance to get cash out. In other words if your house cash flows you have staying power.
I get real estate agents tell me all the time to buy this house or that house and as their selling point they talk about the appreciation. I stop them at that point and tell them appreciation is not anything that they control. They did not bring me this great deal that will go up in value. It is like telling me that if I buy the house it comes with rain periodically. Everybody gets rain and everybody get appreciation. What takes work is find me a house that cash flows.
I agree with Bluemoon, Cash Flow is King! The truth is that it always has been. What we’ve had for the past few years is a real estate fad, where “creative” real estate techniques have been the buzz. That silliness was no more real than the inflated house values during the bubble. We are now at the point where we’re coming back to reality. The bottom line is that those that know how to run a BUSINESS will do fine and those that are involved in the fads of the past (and especially those that bought high counting on appreciation) will fail.
The rental business has always been around and always will be. It’s not flashy or sexy, but if you know how to run a rental business, you will survive and make money. Eric is right that lease options are one technique that can help fill units in your rental business, but the reality is that these “lease option buyers” are just renters. The vast majority of these buyers will never buy the property and never did, even during the bubble period. Remember that these people have sub-prime credit, which is why they are willing to do a lease option. This is a character issue with these “buyers” and largely why real estate is in the tank today. Subprime buyers are simply not able to afford houses, but they can make good renters.
Of course, top performers in all the other traditional real estate businesses will survive. Real estate brokers and agents; rehabbers, remodelers, contractors, etc will all survive if they can adapt to the slower environment. The key in any slowdown is to be ahead of the curve: i.e. layoff employees early, cut expenses, take on other business, and generally move to a defensive position that will allow weathering the storm.
Mike
Speaking of Lease/Options, does anyone know the status of the law that was past a couple years back in Texas that curtailed investors from doing them? I haven’t done one in a long time, but several investors I know still do them. When I ask them about the law, they either didn’t know about it or didn’t care.