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Declining Real Estate Markets

A declining real estate market occurs where annual industry revenues are steadily declining because of the saturation of the market.  The economy is ravaged by job loss and foreclosures.  Banks aren’t lending money like they once were.  Real estate is actually temporarily depreciating.  Retail priced real estate sits on the market for years.  Homeowners are desperately selling their homes at $10,000 to over $100,000 less than what their homes were worth a few years ago.  Tenants are abundant but many of them won’t pay for very long.  The best Real Estate Investors are the only ones surviving and they’re wholesaling to inexperienced investors who are excited to get into the game.  Expert investors that have mastered land lording are also buying to hold until the market improves.  Some are providing seller financing to buyers who can’t seem to find bank financing.  Foreclosures and ugly homes are everywhere; a Sunday drive through any neighborhood will reveal several vacant foreclosed homes.  Banks in this market accept offers on their foreclosed inventory for less than half of what they used to in better times.  Many sellers are able to work out a short sale with their mortgage lender(s) knowing they can’t sell at top dollar like in years past.  In a failing market, it’s possible to buy homes for prices below what they cost to build.

 

It may seem more difficult to profit in a declining or failing market where there are fewer people with credit and jobs to either rent or buy housing from you.  Make sure you have good business partners as a security blanket and keep constant pressure on executing your game plan.  Be prepared to buy and sell at extremely discounted prices to reduce your risk in getting “stuck” in a property under these markets conditions.  Consider conducting more “lower risk” transactions to achieve your income goals and you will sleep better at night.

 

At the end of the day, every house has its own set of numbers to guide you.  Real Estate Investors that let the “numbers be their guide”, manage to flourish even in “bad” markets where others fail.  They also intimately understand that you have to buy at low prices and provide good deals for others, whether you’re renovating homes to sell or wholesaling un-rehabbed homes to investors looking to do their own rehab projects.  In suburbia, it’s wise to build in better amenities than other locally listed houses and still offer lower than average pricing.  In lower income areas, you must provide cheap but nice rehab work and outstanding pricing with seller financing or down payment assistance.  Seller financing is a tool that reigns supreme now because banks aren’t offering zero down loans like they used to.  That is a huge slice of market share we can take from traditional lending institutions and banks fat and bloated from programs such as the Troubled Asset Relief Program (TARP) funds that serve as a means for the U.S. Treasury to buy assets from banks and other financial institutions to allow them to stabilize their balance sheets.  You don’t need a bailout if you are making solid buys and if you have multiple exit strategies!

Tax Lien Redemption Check of the Day

Understanding Credit Grade Guides

This Credit Grade Guide is designed to help you assess your credit rating and what type of terms you can expect from a lender based on your credit.  This is a general guide and may not apply to every lender or situation; some lenders have their own credit evaluation methods and grade credit differently.  Credit is normally scored on an “A” to “D” basis.  The more serious the credit problems, the more the grade decreases.  “A” is considered to be good credit, “B” is above average, “C” is average and “D” is below average.  An “A” borrower cannot have a bankruptcy anytime within the past ten years, whereas a “D” borrower could currently be in bankruptcy or foreclosure.  As the grade on loans decreases, lenders generally assess higher rates and fees.  If you have “D” credit, you may be denied a loan, or you may be charged more fees and a higher interest rate since you will be perceived to be a higher credit risk.  Credit is broken into three primary categories:

 

Mortgage Credit

Mortgage Credit is a record of the payment history on your existing or previous mortgage, which is a very important factor in determining your credit grade.  Repayment history on mortgage debt can be a good indication of a borrower’s attitude toward their mortgage obligations, which is why lenders take a close look at this when considering whether or not to extend credit.

 

Consumer Credit

Consumer Credit is a category that relates to installment and revolving credit.  Installment credit encompasses longer-term credit that has structured payment plans, such as a car loan or student loan.  Revolving credit encompasses department store and bank credit cards.  Generally, these types of creditors will report payments received thirty days or more past the due date as late with the various credit reporting agencies, so it is important to be diligent when repaying these obligations as it could positively or adversely affect your credit standing.

 

Public Records

The third credit category relates to public records such as bankruptcies, collections, foreclosures, and judgments.

 

Understanding credit and how to improve it is best left to the experts.  Thomas Johns has a popular blog that gives excellent advice on the subject.  Check out some of his articles at http://www.tomtalkscredit.com.

Tax Lien Redemption Check of the Day Video

Tax Lien Redemption Check of the Day Video

Evaluating Real Estate Investment Opportunities Before You Buy

Your job is to be as thorough and unemotional as you can be when assessing a property.  If you can, find out why the property is in foreclosure and make a list of everything good and bad about it and you’ll be better prepared to bid.  If you really take your time and make this list you might save yourself from buying a liability.  Making the effort to do this may point out repairs and other issues that could cost you more money than you would like to spend, so always do your research.

 

You must assess the risk and determine fair market value.  About 99% of the time the County Appraiser will have placed a value on the property.  The County Appraisers can be overly optimistic sometimes, so hiring an Independent Appraiser or Inspector for a second opinion may be a good idea, especially if you’re not there locally to check out the properties.  This is all part of assessing the risk and trying to determine fair market value.  It is also a good idea to have somebody on the ground that you can trust if you are purchasing properties outside of your immediate area.  This can be a family member, friend, or another real estate investor.  Typically it is not a good idea to take your final advice from a commissioned salesperson, as they are concerned with putting their commission check in their pocket, and may not necessarily have your best interests in mind.

 

Let’s expand for a moment on the concept of “Fair Market Value”.  Fair to who?  Buyers want deep discounts and sellers want maximum profits.  “Fair Market Value” is an opinion easily manipulated by either party with competing interests.  Being able to determine Property Value is the foundation for all successful Real Estate Investments.  Knowing what elements property Appraisers, Realtors and Bankers look at for true home value is crucial.

 

Here are some attempted closing statements you may hear from yourself or others as you are looking for investment properties:

• “This price is a no brainer!”

• “You are walking into a ton of equity!”

• “This price has been reduced off the recent appraisal by $50,000 bucks.”

• “This property is already well below all the other active listings in the area. It must be a deal.”

• “This property won’t last long at this price.”

• “My Agent has done a Comparative Market Analysis and I am selling well below his/her expert opinion. My Agent has been in the business 30 years, a top producer, Nobel Peace Prize recipient…”

 

All of these statements may be true of the property you are targeting, but you must know for yourself.  Could a licensed, seasoned Real Estate Agent or Appraiser be wrong?  If they are wrong in their opinion of market value is that a risk you are willing to take?

Tax Lien Redemption Check of the Day Video