This post is written by Steve Powanda
It seems like everything that used to work in today’s market suddenly won’t. The best investors will try to take advantage of this by fading the crowd and anticipating where the market will go. I know that sounds to easy, but this credit crisis is providing one of the best buying opportunities I have seen in my life.
Steve Powanda is the Vice President of ACRE, our investors association in Pittsburgh. Steve and I are good friends and have partnered on many deals over the years. Make sure you visit the ACRE website at http://www.acrepgh.com
Adjust To The Market.
It seems like everything that used to work in today’s market suddenly won’t. Nice houses don’t sell. People with good credit can’t get loans. What are we to do? You need to realize that the only constant in this business is change. The real estate business is very cyclical. We go from periods of boom to bust just like any business cycle. The key is it never happens in exactly the same way twice. The best investors will try to take advantage of this by fading the crowd and anticipating where the market will go. I know that sounds to easy, but this credit crisis is providing one of the best buying opportunities I have seen in my life.
It is not necessary to only look for a junker to get a good deal. Many times nice houses in good condition can be bought for a fraction of their value. Here are a few I came across this year. A $200,000 four unit building needing no work but with only one tenant went to auction. There were only three bidders and it sold for only $37,000! A seller had an appraisal of $77,000 on a single-family ranch home in a decent neighborhood needing no work. He had three buyers fail to get a first mortgage. The house was sold to a cash investor for $34,000. The $34,000 came from a private lender’s IRA. The key to theses deals were the investor’s ability to raise cash using owner/private financing, not banks. Since we are in the middle of a credit crisis you need to arrange private lines of credit with individuals, partners and family. Most people want to use bank lines of credit and mortgages rather than individuals. As the lending crisis continues bank lines may be called due or termed out at unreasonable payments. Don’t believe it, read the fine print in your documents you signed in a rush to get the money.
So how do we find these deals? The first place I would look is in the MLS, with banks taking on inventory at lightning speed there is a tremendous need to dump them cheap and fast. Running ads and marketing will still work but is not nearly as important as the MLS. A private seller can only drop his price so much before he must either create a workout with the lender or bring money to sell the house. If a seller has a bad loan or negative equity why do you want them to call you? Sure you could do a short sale or something creative, but it is easier to go after the low hanging fruit, the easy prey, the banks. Once the lender is the owner of the property, there is no limit to how low they can cut the price. Best of all it not their money it’s the stockholders money they’re losing!
Remember the cheetah is the fastest animal in the jungle and can run down just about any animal. When the cheetah hunts it looks for the slow or weak prey, because of this the cheetah eats every day. If you are able to adapt to the market and think like the cheetah you can create a tremendous portfolio of properties. You must listen to the market and flow with the tide instead of against it. Trying to retail house to the end consumer is a prime example of swimming against the tide in this market. As people are getting out of real estate to get into the next hot fad you need to be picking up their mistakes at pennies on the dollar. Holding the property for one to two years then sell at retail and avoid the short-term capital gains tax. If you play your cards right many of us could see our net worth double or triple in the next 3 to 5 years.