This is an incredibly exciting time to be a real estate investor. While much of the country is fixated on all the negative news (as they view it) of over-built neighborhoods, rising interest rates, and sagging prices, hopefully you’re able to see the silver lining and recognize the opportunity.
The yield on the 10-year treasury note is on the rise, which directly influences the movement of interest rates (also on the rise lately). As rates increase, fewer and fewer people can afford to buy, and those that do are having to settle for smaller homes than they might otherwise like to live in.
In recent years, loan money has flowed freely even to those who normally wouldn’t qualify to borrow. Sub-prime loans have catered to those who don’t qualify for loans under normal underwriting guidelines. With more buyers in the market with the funding to purchase, demand was high, higher than the supply. This caused prices to rise quickly. As people saw prices rising so quickly, they rushed in to buy additional speculative property, which added to the demand in the market. Many of the loan programs available required little to no money down and many offered very enticing “teaser rates�, coupled with ARM (adjustable rate mortgage) loans. ARM loans start with fixed interest rates and payments for a short period of time before going adjustable, thereafter having payments that adjust freely up or down each month with market rates, leaving the borrower susceptible to higher payments down the road. Many borrowers could barely afford to get into their home even during the period of the fixed teaser rate, however, they reassured themselves that they’d be able to sell the property and pocket a great deal of appreciation before the adjustable portion of the loan ever kicked in.
Once markets started to slow and soften a bit many of the speculators and other investors holding property at the time tried to dump what they had and get out, but they found that selling was difficult once supply was high and demand was quite low in relation.
All of the issues listed above have lead to a point that is depressing to many but extremely exciting to those who look for the opportunity and are ready to act on it. In recent years, many investors in “hot markets� have complained about how difficult it is to find motivated sellers. Today, motivated sellers abound. For evidence of this, try going to a site like www.craigslist.com and looking at the homes for sale in some of the hottest markets of recent years like Las Vegas, Phoenix, and San Diego. You’ll likely find sellers willing to rent, lease option, and maybe even carry back financing. You’ll find offers to pay closing costs, give cash back at closing, etc.
We’ve all heard the most common investing advice to buy low and sell high. In recent years, speculators have tried going by a new adage of buy high and sell higher (which is largely a game of chance). Many investors made some money with that strategy but many also got clobbered when the market turned. The coming months and years could hold some of the best opportunities you ever have to find truly motivated sellers. We can genuinely help these sellers while creating sizable future profits for ourselves in the process. In these exciting times we hope that you’ll buy low so that you can sell high and better your financial future.
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