For the first time in years US credit scores are falling. Along with that there appears to be a tsunami of new squatting incidents across the country. Both are situations where real estate wholesalers can offer valuable help, and find more deals.

Declining Credit Scores

FICO’s latest report shows American credit scores have begun declining for the first time in a decade. Since right before the last financial crisis.

Consumers have tapped out savings, and have increasingly tapped out credit cards, which they’ve now been defaulting on at record dollar amounts. Along with auto loans. We are also seeing foreclosures surge as a result according to ATTOM Data.

When consumers max out their credit balances, their credit lines get cut, and their costs go up, like car insurance and interest rates on other debt. That’s an expensive snowball that just takes them down, and just keeps fueling their financial distress.

Squatting On The Rise

Every day it seems the news headlines feature a new squatting incident. Again, another issue that doesn’t appear to have been this wide spread for a decade.

Squatters are getting smarter, and they can be expensive to get out. It can take months. One homeowner even just went to jail for protesting in front of his own home that a squatter took over.

This is only likely to escalate as credit scores fall and foreclosures rise. More people will be left with no choice but to try and squat somewhere. Especially as homelessness is increasingly being criminalized across the US. As more homes go vacant through foreclosures and are abandoned, there will be more places for squatters to pick from.

 

Creating Solutions

Real estate wholesalers can help both homeowners and rental property owners as their credit begins to slide. Find signals of these credit and cash crunch issues, and make offers early in the default process, when there is more equity.

If they have squatters, you can hire a great lawyer, or find other creative and legal ways to convince them to leave. In the process you can create a lot of value between the time you go to contract to purchase, and then wholesale the property to another buyer. Those who begin specializing in buying squatter properties may find they strike gold in a growing niche.

Real estate investors simply cannot afford to allow themselves to fall into a scarcity or fearful mindset.

If you’ve found yourself holding back from doing more deals, or bunkering down instead of pushing to grow your investment business, this is for you…

Self-Fulfilling Mindsets

We almost always get what we think about and focus on. So, when we are focused on growth, positivity, and getting out there to do more deals, it happens.

Similarly, when businesses and investors contract, begin holding back out of fear, and fear they don’t have enough money, guess what happens? Deals don’t get done, and they run out of money.

Remember that there have been other individual investors and CEOs that have made incredible fortunes in real estate in more challenging times than these.

If you want others to keep being active in the market, then you need to lead by example.

If you are not marketing every day, making offers every week, and are not closing on deals every month, then it is only a matter of time before you do run out of money and end up bankrupt.

The only alternative is to get busy making things happen.

The Demand Is Always There

In addition to the fact that real estate wholesalers can do business just as easily in up and down markets, one of the beautiful things about being in real estate is that the demand is always there.

There will always be a need for housing. To the tune of millions of households per year. For one reason or another people will always need to move each year. Investors and companies will need to sell and buy properties each year.

Even in a depression there will be movers, those who need to downsize, divorcees splitting households, those needing to find tax breaks and new income sources.

Connecting the dots between the supply and demand may require some adjustments in your business model, and a little creativity. Yet, there are plenty of deals to do, if you’ll just step up and take advantage of them.

Do Deals Daily

As a real estate wholesaler you really don’t have to worry about what direction the market will be headed in next quarter or next year. It is irrelevant to you making money right now.

Push ahead by making a minimum of five purchase offers each day. Set goals to add at least five new end buyers to your list each day. Based upon your income goals, set figures for how many deals you will close on and exit each month and week. Then just get to it.

The S&P Case Shiller Index reports US home prices have hit a new record high, after posting 8 straight months of consecutive gains.

Just how high are home prices in the US now? Why are they going up so much? What does it mean for property investors?

Record High Home Prices

While all real estate is local, and there seem to be many ways to calculate ‘average’, Forbes recently put the average home price in America at over $495k.

Including interest for retail buyers that use financing that means the average home can now cost homebuyers well over $1M.

The average rent households can expect to pay in their lifetimes may well be over $500k as well.

The Ideal Conditions For Real Estate Wholesalers

The mainstream media say that house prices keep going up due to a lack of homes for sale. Of course, high inflation on everything is certainly adding fuel to the fire as well.

Many industry experts, Realtors, veteran investors, and home sellers may disagree with these findings too. Some are certainly seeing transaction volume down, longer marketing times, and buyers wanting to pay less.

Recent bank data shows that there is a mountain of distressed debt growing. Including defaulting credit card payments, auto loan repos, business loan delinquencies, and construction and commercial mortgage defaults.

This signals great distress behind the scenes, with many ripe to be motivated sellers. Together with fast rising prices, and a shortage of publicly marketed units to meet demand, these are the ideal conditions for wholesaling real estate.

Connecting The Dots

There is great need out there. With millions of individuals, households, and businesses needing help. Real estate investors that can help bridge this divide stand to be very well compensated in this market.

While many motivated sellers have not listed their homes, they are out there. Many more would love to, and need to sell, if they can get a reasonable offer. Consider how to identify their distress, and reach and and connect with your purchase offers.

There is plenty of investment capital that needs to be put to work as well. In the form of transactional funding, this money can be very cheap. With current deals on jumbo sized loans coming with as low as 1% interest.

Then it is about presenting this inventory to end buyers. These may be other professional investors, movers seeking to downsize and find more affordable housing, or affluent families looking to protect their wealth in real estate. Find out where they are, and market to them.

A new court ruling has found that the National Association of Realtors has illegally kept real estate commissions inflated.

This verdict could dramatically alter the US real estate industry, in far more ways than many imagine.

Are Realtor commissions too high? How will this change the model of how properties are bought and sold in America? What does it mean for property investors?

Are Realtor Commissions Worth It?

This particular case in Missouri resulted in $1.8B in damages being awarded. This follows on from other lawsuits and settlements against individual brokerages, and several years of Justice Department investigations.

The main issue publicly centers around NAR having illegally colluded to keep commissions up at 5-6%.

An issue made extra ironic as it is supposed to be the organization that upholds ethics in the industry, and add credibility to agent members. Not detract from them.

Of course, when you really do the math on what Realtors net in a transaction, and how hard they work, many may be barely scraping in a minimum wage income.

Between privacy, efficiency, and negotiation benefits, the best real estate agents do offer great value. They certainly aren’t overpaid. Yet, gross commissions can be expensive, and eat away at your net as an investor.

Changing The Way The Industry Works

This is much bigger than just making NAR irrelevant or slashing Realtor commissions.

Coverage by Bloomberg cites a push towards the UK and Australian models, where commissions are much lower. Of course, this may come with many unintended consequences.

Often overseas there are no agent licensing requirements. Agents get their own listings, and do not cooperate or share commissions with buyer agents.

In turn, consumers have no one protecting their interests. Living and housing costs are dramatically higher. Homeownership is prohibitive in terms of access and expense. Investors abroad prize the current US model, as their local options are normally wealth preservation with very low yields or negative cash flow rentals. This model would erode our national advantage, and would hurt individuals far more than most imagine.

For Real Estate Investors

First, if you’ve been debating becoming a real estate agent before investing, don’t. Skip the costs, time, and going into a contracting industry.

You may still find great value in using real estate agents. You may also find the ability to negotiate better deals on commissions going forward.

This, in addition to end investors having to get used to lower yields, and negative cash flow, can mean a lot more profit for real estate wholesalers.

Now is the time to make your push, as those who control the inventory, will control the market.

Our Fall loan deals with rates as low as 1% can help! Check them out here.

How can real estate wholesalers find more motivated sellers and buyers in this market?

Securing the most valuable and profitable property deals, and getting the best ROI on your time and marketing efforts all comes down to finding and connecting with motivated sellers, as well as buyers.

This requires understanding who is motivated and what trigger points will lead them to convert.

Who Are The Motivated Sellers In This Market?

There are both institutional and individual motivated property sellers in this market.

The overriding theme here is high inflation and high living costs, which could last for many years according to some experts. A factor which may also be compounded by soaring unemployment due to high costs and the rise of AI.

According to Axios, small US banks actually hold 70% of all commercial real estate loans. They also hold almost 40% of all residential real estate loans. These institutions are coming under increased financial pressure as consumers run out of money and demand their deposits back, and default on loans.  They need to convert more assets to liquid cash. Which could make them a prime source of wholesale property deals in the near future.

For those that don’t think they are in trouble, it is worth noting that a coalition of these small banks have been pleading with the government to insure all of their deposits for the next two years.

Then there are all of the individual homeowners who are grappling with financial and emotional struggles.

What Is Convincing Property Owners To Sell?

Owners generally don’t take the action to actually sell and go through with the process unless they are really feeling stress in their current situation, and perceive more relief and pleasure from it.

According to a US News & World Report, the top things keeping people awake at night this year include high living costs, pandemics, gun crime, climate change, and the presidential election.

How To Put This Into Play In Your Business

Utilize the above information to hone in on who your highest converting prospects are likely to be.

Use it to craft your marketing campaigns and in how you pitch your purchase offers.

Then use this same data to understand how to best pitch your properties for sale to meet the needs and desires that your prospects are looking for. Highlight how your properties check their boxes.

Now check out our Fall Loan Deals for financing as low as 1% on your wholesale properties.

What’s in store for real estate wholesalers in 2024?

Once again, the main theme of the year may be uncertainty. At least on the macro level. As well as especially when it comes to home prices and conventional retail home buyer activity.

However, what we do know for sure is that there are several factors influencing the economy and real estate in particular. As well as the opportunities they are likely to create.

Though it may not be until after the 2024 presidential election that real estate pros enjoy more clarity on the direction of the economy and property market, and are able to best plan, strategize and forecast their finances for the following four years.

Factors Impacting The Market For 2024

In 2024 we can expect to see the following factors influence the real estate market:

The impact of recent high inflation on living costs.

Living in a period of high interest rates.

AI and fast rising unemployment.

The ripple effects of escalating consumer distress.

Volatility in the stock market.

A high probability of new national or global crises.

Opportunities For Real Estate Wholesalers In 2024

The above is going to show in through a variety of opportunities for real estate wholesalers.

Firstly, we can expect a lot more distressed property acquisition opportunities, with highly motivated sellers who need to sell very fast.

The wealthy who are benefiting from recent trends will need to put more of their money into real estate to protect it. Both in the form of luxury residences and income properties.

Among the millions of those being negatively impacted by these trends will be many who need to get into real estate to make up for lost income. This may create a whole new pool of end buyers, partners, and potential workers for your investment business.

Take advantage of our 1% Fall interest rate deals, and get your proof of funds to start doing more deals today…

According to Boston Consulting Group and Bloomberg, big fund managers are struggling. As this $100T space faces a revolution, where will the capital go, and how can real estate investors position themselves to benefit?

The Big Issue

The massive asset management industry appears to be facing a major inflection point.

Coverage of the issue reveals concerns that many large financial firms may face extinction in the near future. Their investor customers have been increasingly demanding cheaper, and more passive investment strategies.

At the same time, money managers face the challenge of trying to make more money in a bear market, which has already seen some lose money for 20 quarters in a row.

Reportedly 90% of the additional revenues these firms have enjoyed over the past 18 years is from the rising bull market, instead of attracting new capital from clients.

In the past six years investors have yanked $600B from these fund managers. With Blackrock seeing $13B in withdrawals in the past three months alone.

For Real Estate Wholesalers

As a real estate wholesaler, how can you benefit from this shift in available capital, and avoid repeating the mistakes these dying firms have made.

Don’t Count On Appreciation Alone

Even as a real estate wholesaler and flipper it can be tempting to sometimes make offers based upon a fast rising market. Whereas savvy investors are always looking to build in an equity cushion with their offers, just in case the market shifts mid transaction.

Sell To Those Providing Passive Income Investments

It seems that passive income investments are increasingly trending in demand. Consider how you can wholesale in volume and create a pipeline to those serving the end retail investors in this space.

Maintain Sustainable Margins

Profit margins that are too thin are frequently the cause of businesses failing. It can also be harder to raise pricing later. Be sure you are operating on strong margins in the beginning, with room to offer deals, and still make a profit.

Serve Those Fearing A Bear Market

Whether you believe it is a bear market or there is a new recession looming isn’t nearly as important as what end buyers and their clients think.

If that fear is driving their decisions and where they put their capital, be sure you are catering to them.

This may include altering the price ranges and property types you are targeting, as well as geographic areas.

Be sure to check out our 1% interest rate deals on loans over $600k, and scale your business this season.

While other mortgage lenders are hiking their rates like crazy, Best Transaction Funding are slashing their interest rate deals.

Our MEGA fall sale offers just 1% on loan amounts from $600k to $1M*.

Simply enter Coupon Code "1%MEGABLAST" with your funding request.

Applies to all loans closing before the end of the year.

This Is The Time To Buy

This is a fantastic time for real estate wholesalers to be buying and lining up deals.

Fall is the best season for writing offers on property. There may still be the tail end of the back to school season to capitalize on. After which sellers panic during the following seasonal lull in competition.

Other recent trends in mortgage rates, and home loan defaults are compounding this, so that real estate investors can take advantage of more negotiability, and even better discounts on new properties.

Line Up Those Windfall Profits

Some housing markets are still experiencing up to 40% year over year appreciation. Both hyper affordable markets where people are moving to, as well as wealthy enclaves used for asset protection.

Others will see their uptick closer to the end of the year. Annual bonuses, a surge in economic and real estate activity from Black Friday through New Years Eve all help to make this one of the great time to sell.

We’re Here To Help

Other real estate lenders are just hiking interest rates like crazy, because they think they can.

We truly want to see you succeed and grow your business.

So, while unconventional, we’re slashing our rates to put our money where our mouth is. Plus, enjoy our same great human service for getting those deals that make sense done.

Request your POF or apply for your loan with us and lock in this deal today!

*NOTE: This 1% sale is not to be combined with any other special offers and referral fees do not apply.

A new FHFA mortgage rule that goes into effect on May 1st aims to penalize those with higher credit scores and down payments, in favor of subsidizing higher risk borrowers. What does it mean for the real estate and mortgage market? What is the impact for investors?

New Mortgage Rules Going Into Effect

The new rule being instituted on May 1st switches around the long term trend of lower interest rates going to the most credit worthy and low risk borrowers.

There has always been risk based pricing in the mortgage market. Though, until now low risk borrowers that have been the most responsible with their credit, and who are putting more skin in the game with larger down payments have been rewarded with lower borrowing costs and interest rates.

Now the Federal Housing Finance Agency is working to subsidize the risk on lending to those with bad credit scores by charging lower risk borrowers more. Then using that money to give low rates to others.

For those purchasing a home or refinancing with a 680 credit score, on a $400k loan can expect to pay around an additional $40 a month, according to coverage from the Washington Times. Right during a time when mortgage rates have already doubled, and housing prices have been sky high, along with other inflation.

Trouble Continues To Brew In The Banking Space

Since the Great Recession FHA and similar loan programs have effectively acted as the new ‘exotic mortgage’. The types of loans that were blamed for the 2008 financial crisis. Loans with low down payments, to those with weak credit, and most likely to default.

This new rule seems to build on that, creating even more risk. Right when banks and lenders are already failing at great scale.

This may inflate that bubble even more, filling it with highly risky loans, and setting those lower credit borrowers up to lose everything.

Where it applies to ‘government backed’ loans, the other risk is of course that all taxpayers will end up footing the bill, and have to bail out these organizations for reckless lending.

The Opportunities

In the mid to long term this seems almost certain to lead to more distress, mortgage defaults, and in turn, more discounted homes and loan notes for sale.

At the same time, in the short term, it could mean an opportunity for those with weak credit and low down payments to still buy a home of their own. Which is fantastic for those that can really afford to sustain those homes long term.

This may be a new area of focus for some investors, who can flip and wholesale more affordable homes to lower income borrowers. Helping to fill the gap between distress and demand.

The good news is that, as a real estate wholesaler, you already don’t need a great credit score or any down payment with transactional funding. It’s a great way to make money in real estate and then pay cash for your own house.

The next banking crisis now seems to be well underway. SVB’s going bust is likely just the first domino to fall. Which means it is time to get busy finding those deep discounts and doing the best real estate deals of your life.

$1 Deals

HSBC just bought the UK business of SVB (Silicon Valley Bank) for just $1.22.

During previous crises saw real estate billionaires like Sam Zell made famous for similar $1 deals.

Many more huge bank failures are likely in the works. Which is going to have a waterfall effect on other businesses, and individuals, spawning even more distressed assets.

House Deals For 40 Cents On The Dollar

During the last financial crisis it was common for real estate investors to pick up properties and mortgage notes for as little as 40 cents on the dollar. Sometimes even less. Though you can still probably make sizable profits at 60% or 70% of recent values.

While not all property owners and sellers are that deep in financial distress yet, or won’t see and admit it, we can expect millions of motivated sellers to emerge soon.

Making Money In This Market

This is when the real wealth gets made. It is when the few winners emerge, and displace the majority of the competition.

This will probably represent the best discounts on real estate you will see in your lifetime. Thankfully, interest rates are also much lower than they were last time too. At least for the moment. Financing is still available too. Especially for real estate wholesalers seeking to eliminate risk, and make their money before asset prices change further.

To succeed and be one of the winners it may take flexibility in your business model and some creativity. As well as staying strong while others panic.

To access many of the best deals and discounts, and in volume, it can take connections. Be sure you are staying ahead by building your network, and developing strong human relationships.

Then to turn those deals into dollars of profit, you’ll need to be unleashing some of your best marketing to end buyers yet.

Those with the best marketing, and who continue to stand out from their competition will be those that are able to enjoy the most money moving into their businesses, and will create an upward spiral, instead of the reverse.

Distressed properties and discounts finally seem to be appearing for investors who have been waiting for better value opportunities.

Investors are still hungry for deals. In fact, the volatility in the stock market will probably bring a lot more capital in search of real estate for safety and income soon.

While not every seller is motivated or in enough of a crunch yet, many are willing to sell at discounts for cash. Real estate wholesalers who get out ahead of the pack will begin to find more deals to fill their pipelines with.

Bill Gates Takes A Loss In NYC

Bill Gates recently listed his daughter’s Fifth Ave. condo in NYC at a quarter of a million dollars less than he paid for it. With many properties now selling for under list price he might take an even deeper loss than that.

If titans like these are that motivated to sell, there are going to be many others too.

Twitter Defaults On HQ Rent

$40B tech company Twitter is being sued for failing to make its rent on its headquarters in San Francisco. That’s after shutting down offices in Seattle.

Amazon has also had to lay off 18,000 workers already this year, and try to sublease warehouse space it recently built after a lack of demand.

Not only will this yield more commercial real estate deals, but plenty of residential properties as tens of thousands of tech workers face unemployment and need to structure their housing expenses.

IRA Balances Nose Dive

According to Fidelity, IRA balances dropped by 25% year over year to November. Similar losses were seen in 401ks. Given the bearish outlook on the economy, expect those losses to compound and snowball in the first half of 2023.

Many individuals may cash out these accounts to put their money somewhere safer like real estate.

Make Offers: There Are Discounts To Be Had

This is a great time to be out there making offers on residential and commercial real estate. Even if owners are not motivated enough to give you the discounts you want now, keep the lines of communication open for later, when they absolutely must sell. You will build up a big pipeline for the rest of the year.

Price Your Deals Right

On the flip side, make sure you are pricing your resales with room on the table for buyers. Everyone wants a deal right now.

The Federal Reserve just raised rates again. What does it mean for real estate investors?

The Fed continued their rapid interest rate hike spree in December. Although this smaller half point hike was not as severe as the last one, it continues the trend, without having allowed time for the data to be published on how well previous hikes have achieved their stated objective.

Inflation

According to the Fed, the purpose of these rate hikes is focused on bringing down inflation. While it could tame some spending, higher rates typically also drive up the true cost paid for things. Which may be actually fueling inflation, rather than ending it.

Unemployment

Among the commentary on this latest rate hike is a fear that the Fed is committing to a period of high unemployment as they force employers to cut jobs.

This could be a very bad time for millions to lose their jobs. Especially with record amounts of credit card debt, and other debt which is subject to seeing repayments rise as rates go up.

If we do start seeing unemployment rise, then there will certainly be a rise in distress, and quite likely more mortgage defaults. At a minimum it should mean more motivated sellers eager to unload their homes at any number and terms possible.

Stocks Plummet

In response to the most recent rate hike 96% of the S&P 500 stocks fell immediately after the news.

That suggests investors in public stocks, including fund managers do not believe that the Fed’s monetary policy is sound, or taking the economy in the right direction.

On the bright side, when the stock market fails, many investors shift their capital to real estate. Which supports more competition and higher values. Given this comes in tandem with the crypto crash, we may see even more flight capital headed into real estate this year. Providing great exits to investors who are also capitalizing on distress caused by rate hikes.

The Stimulus Wild Card

If the economy does suffer from these rate hikes as some suspect, then there will certainly be calls for more stimulus money and bailouts to get us out of that hole.

This would in turn fuel even more inflation. Which would also be good for landlords and their rents.

Summary

While we may face an uncertain year ahead, there are plenty of side effects of rate hikes and follow up policy which could help real estate investors.

This is especially true for real estate wholesalers who have limited exposure to interest rate costs, and are not exposed to price volatility.

According to data from Redfin and the NY Post, 24% of home listings have been taken off the market by owners in just the last 12 weeks. How can you find and buy them?

On reporting these latest real estate stats, Redfin says that homeowners are becoming increasingly frustrated and disappointed at having missed the peak of the market. They either aren’t attracting the high offers they expected, or aren’t getting any buyer activity at all.

Overpriced listings aren’t taken seriously by buyers. Then after the first few days of showing up online get buried in the mix, and become stale listings that don’t get noticed.

Of course, these homes aren’t going to sell themselves if owners just give up and sit on them. A poor move which in this phase of the market means that they’ll get less and less for their properties the longer they wait. A vicious downward spiral. In which eventually they will have to sell for a lot less or will lose those properties in foreclosure.

Why Buy Them

There are no bad properties. It’s all about the price and terms.

There is plenty of money to be made by real estate wholesalers on this slope.

In fact, these can be the ideal types of properties for wholesalers. Owners are more motivated, and ready to deal. Once delisted, there are no real estate commissions, which can help net the seller more, even with a lower offer.

How To Find & Buy Them

If you are diligent as an investor you should already be tracking all of the properties in your market, and specific target properties you really want. You should know what comes on the market, when it does, when properties sell, and more.

You can also run regular searches for withdrawn and expired listings.

Before they get pulled off market, and it becomes harder to reach a decision maker, you may target aged listings and listings with price cuts.

There are other properties and sellers you can target too.

Such as by the amount of equity in the property. By who has the most room to deal, or needs the least cash to do a deal.

Or you may find data (if you are legally able to use it) on recent mortgage inquiries, suggesting owners have tried but failed to refinance, those who are late on payments or property taxes, or who have adjustable rate mortgages or large amounts of credit card debt. All people who are suffering from fast rising payments on debt.

What’s motivating sellers to sell their properties in this market?

Finding motivated sellers is critical for house flippers, real estate wholesalers, and acquirers of buy and hold income properties alike.

However, the latest data shows that mortgage borrowers of all types may be in a much stronger position than believed. At least for now. So, if they aren’t falling into foreclosure yet, what are some of the motivators that make for good sellers and deals in this market?

Mortgage Debt Performance Stays Strong

The latest round of data from banks reported by DistressedPro shows that mortgage lates and defaults have fallen across all sectors. Including residential, commercial, and farm loans. There are almost no REOs being held by banks.

Many thought there would be a lot more foreclosures and defaults by now.

Thanks to many locking in very low rate long term loans, there could be a stronger foundation in the market for this cycle. Which supports property values, and helps to avoid a new massive foreclosure crisis.

Buyers & Sellers Get Bearish

In spite of the above data, Fannie Mae has been one of the most bearish on the housing market. Predicting trouble in the real estate market could throw the entire economy into a new recession next year. Even though we just exited one.

Their recent survey shows just 16% of home buyers think that this is a good time to buy. With only around 40% of sellers thinking that this is a good time to sell.

How Do You Find The Motivated Sellers

Of course, just because it may not be as an attractive time to sell a home for regular homeowners as in the summer, that doesn’t mean people won’t have to sell.

Layoffs are surging, with few new jobs due to hiring freezes. Along with diminishing affordability due to inflation, and consumers defaulting on more credit card debt, auto loans, and business loans than any point in the past two years, many are in financial distress.

There are lead lists that can help identify these markers. Investors can also use SEO and content marketing to educate owners about their options and lead them to getting an offer.

Other real estate companies, businesses, and even the world’s largest banks have been selling off real estate assets to recoup capital to keep operating. Even at prices much lower than they were valued at a few months ago. Try direct marketing to them.

Falling home prices could be the most pressing motivator right now. In the past three months alone an estimated $1.3T in home equity has been lost due to declining prices. Any seller with some common sense, and educated on how much further prices can go down will see it is better to cut their losses now, than to wait and lose more.

Trying publishing more educational content around this. Whether it is on your blog, or via email or print newsletters.

While some real estate commentators have continued to take to the media to proclaim the housing market will stay strong due to underbuilding and a need for more inventory, a new report from Bloomberg argues that builders are already suffering from oversupply.

Why is there a disparity in these claims, what do the numbers show, and how can struggling home builders become a great source of deal flow for real estate wholesalers?

Too Many New Homes

A new report from Bloomberg states that US home builders are already being lumbered with too many unsold homes.

Inflation in living costs and rapidly rising interest rates have been pricing many buyers out of the market. According to data from the National Association of Home Builders (NAHB), this June saw the most new homes delivered to market in 12 years. The same month, buyer activity dropped to its lowest level in 10 years.

Figures from the US Census Bureau show new home inventory has rocketed to almost 10 months of supply. Compared to the competitive market in which homes were recently selling in a day with multiple offers or waiting lists.

Some builders fear that they are going to be stuck with more unsold new homes than in the last crisis.

Why Are Builders Getting Stuck?

Common reasons that builders are finding themselves in this situation, even when the existing home sales market may be stronger include:

• Pricing new homes at the peak or above market value

• Lack of affordable housing

• Building the wrong type of inventory for consumers

• Overbuilding in the wrong areas

It is worth noting that the most recent data from BankProspector also shows a dramatic spike in construction loan defaults. Lenders may be slowing down draws, and are fearful of extending more time to builders who are hitting maturity dates.

Turning Builder Surplus Into Deal Flow

This surplus of inventory can be great deal flow for investors.

You can help builders close out communities by acquiring their last remaining units so they can get cashed out and onto the next project.

Many builders may be stuck with furnished model homes that they would like to liquidate.

In other cases, those at the front end of new projects need to pre-sell a percentage of units to obtain financing. You can step in and grab multiple units as sizable discounts.

Or perhaps you can acquire and wholesale stalled construction projects and unfinished homes for flippers and other builders who will finish them.

Property prices and rents appear to be floating down. With many seasoned investors expecting a deeper dive on the horizon, how much should you be making offers for now?

Shopping For Discounts

In this new phase of the market everyone is looking for deals and discounts. They don’t want the risk of buying in at the top of the market. Then instantly losing as prices continue to come down.

With this in mind, savvy buyers are going to be offering even less than current market value to build in that cut.

You may have recently seen some veteran real estate wholesalers and fund managers remind us how they were buying properties and mortgage notes and reselling them for as little as 30-40 cents on the dollar back in 2008. Sometimes even less than that.

We may not be there yet. Though many investors are sticking to offers no more than 30% of recent comp values.

Don’t get hung up on rules of thumb. Especially as the market is always in flux, and changing. Though do make sure you are ahead of the graph.

Focus On…

Instead of focusing on rules of thumb for offering 90%, 50%, or 30%, of previous values, the two things it makes more sense to focus on are:

1. How much you can sell it for
2. How much you need to make

The first is about risk. Lowering your risk. You can do that by focusing on wholesaling real estate, and using transactional funding. Meaning you aren’t getting stuck holding any deadweight properties which may go down in value and put you underwater.

So, before buying, know how much your buyers list are going to pay for it.

If they are willing to pay 90% of market value, then you can offer a lot more to sellers than your competitors, and still make good money.

The second part of this is working based on how much you need to make.

This may either be a flat dollar amount per deal, or a desired percentage return. For example, you may want to be making at least $20,000, or 20% profit for it to make sense for you.

Decide on your number, and on your fees, taxes, and transaction costs so that you are netting what you need. Make your offers based on that.

Some sellers may still be resistant and in denial. Though it won’t be long before they are desperate to sell. You can always update your offer then to account for the changing market.

Few saw the change coming this fast. Yet, in just a matter of weeks it appears that the North American real estate market has substantially shifted in favor of buyers.

This is great news for real estate wholesalers. It also means that those who are still stuck holding properties need to move them very fast.

Home Sellers Are Slashing Prices

We’ve fast gone from incredible bidding wars, with even big investment firms proudly paying 50% over market value for properties, to sellers almost competing just as fiercely in slashing their asking prices.

In Boise, Idaho 40% of home sellers have recently reduced their prices. Followed by around 30% in New Orleans, and Cape Coral.

Home Values Are Coming Down

Of course, in turn, sales prices and home values are coming down along with that. Some cities are already reportedly seeing them down 10% to 15%. For example, in Kalamazoo, MI.

Similar trends have been reported in Canada, where the market has also flipped, and recently hot markets like Waterloo are down by 8.5% as of April. With economists expecting them to drop by 20%.

It is true that these are reductions from very lofty highs. If the Fed can manage a soft landing it could just mean a slowing of growth, without an absolute crash.

Though JP Morgan Chase’s CEO just warned that we are facing an imminent financial hurricane.

What It Means For Real Estate Investors

Those still holding rehabs and speculative flips need to exit them fast. Or they face being caught underwater, with dead weight that is dragging them down.

Of course, most experienced investors have been waiting for this moment. They’ve been waiting for asset prices to come down, and the numbers make sense again.

It’s time to get bidding, and scaling. Just at the right figures, which price in the drop. Then wholesale them fast enough not to get caught with any further declines.

Obviously, this is best done by filling pre-orders from other investors who have cash and are ready to buy them immediately once they are under contract.

While capital markets have been flush, and business and mortgage lenders eager to put money to work out there, rising rates, and fear of a contraction could change that.

This makes leveraging transactional funding for quick in and out deals, with low risk an even more appealing option as we look ahead.

 

Foreclosures are rising. Is it enough to shift the market, or just fuel real estate wholesalers with more deals to do?

According to ATTOM Data foreclosure filings leapt almost 30% between January and February this year. With a year over year increase of almost 130%.

That sounds like a lot, but it still only means around 26,000 new foreclosure filings for the month. That is sadly many individuals and families that could be losing their homes. Though it certainly isn’t enough to satisfy current demand.

There may be far more foreclosures in the works when you add filings and defaults from each month. Though most are being snapped up as pre-foreclosures before they become REO, due to the high amounts of equity in the market. Of course, banks may also see taking back properties as being attractive and profitable.

More Foreclosures Are Coming

One reason for such a large percentage spike in foreclosure activity is that the legal process is just recovering from moratoriums and shut downs.

With around just 1 out of every 2,500 housing units receiving a foreclosure notice in Jacksonville and Orlando, FL in February, the market seems much healthier than in 2008. When it wasn’t uncommon to see the foreclosure rate 5-6 times as high.

However, there are a variety of factors which could produce even more foreclosures, and motivated seller deals in the near future.

Opendoor has estimated it is holding $6B in unsold properties. That follows Zillow’s failure, with around 7,000 properties to unload. That could be added to with the failure of other big iBuyers like Offerpad.

Then there is inflation, which is cramping consumer finances. Even aside from groceries and gas, there are large hikes happening in taxes and insurance. Many will see jumps in property tax bills. Some condo and townhome owners are seeing their HOA dues jump by 300% to 400%.

Seeing The Opportunities

With such great end demand for real estate, investors will find any more distressed and motivated seller inventory very attractive. With the potential for better value deals, and more volume.

This doesn’t just have to be residential either. Some of the biggest wholesale deals we’ve seen recently are office buildings. Retail and mixed use could be areas to explore as well.

 

Reselling properties seems to be a slam dunk for real estate wholesalers and flippers. Tens of billions of dollars in capital, and millions of buyers are looking for house deals, and rental apartments. So, where do you find more inventory to serve them and scale up your investment business?

Networking

Now that the worst of the virus seems to be behind us for now, and people are eager to get out and mix in person again, this could be the time to kickstart your networking.

This can be casual networking as you go about your daily life. Or it can be at professional networking events. If there aren’t any happening near you, maybe you can start your own.

Expand from the usual real estate investor and agent circles. There may be attorneys with landlord clients who really want to sell. Or corporate executives who need to restructure their real estate, or help employees with their housing situations.

Aged Leads

Some of the most successful high volume real estate wholesalers find that 90% of their deals come from the follow up.

Every lead can be a deal. It is just a matter of being there and connecting when it is the right time for them. So, consider a new campaign targeting your old leads.

Update your database and CRM. Try email newsletters, text, and other contact methods you have to reconnect with them.

Mortgage Lenders & Note Investors

This is a space which has really exploded in popularity over the past couple of years. Of course, that doesn’t mean that every new lender and note investor is being successful. Or that every one of their loans is performing. These can be great relationships for tapping into a regular volume of deal flow.

Direct Mail

While people may be emerging from lockdowns again, travel is still very limited. Especially ahead of peak summer travel season, this may be time to hit prospects with direct mail at home.

Marketing seems to be coming full cycle again. The FTC says consumers lost $770M to social media scams alone last year. People are quickly losing trust in online marketing. Showing up in the real world could help you stand out. Just don’t do those cringeworthy old postcards.

Be creative and unique, and mail something that will stand out.

Create A Niche Destination Website & Blog

The bulk of the real estate activity now is moving away from restrictive and dense big cities and to new areas. Why not create a destination website and blog for movers and investors exploring your area for the first time? This could be one of the easiest ways for you to stand out online.

 

The US real estate market is expected to hit new records this year. Yet, choosing the wrong deals and buyers could turn your best year ever into a financial nightmare.

There is plenty of capital for real estate wholesalers to use transactional funding to flip deals fast for big profits. Though end buyers relying on financing could run into challenges in trying to close due to quirks they may not anticipate in mortgage underwriting guidelines.

Even some of the most progressive new private money lenders, and investment property lenders have a lot of rules which can be directly at odds with what investors are being told are good deals this year.

Here are five to watch out for when contracting with an end buy that needs financing.

Square Footage

Unless you’ve run into it before you may not be aware that lenders often have minimum and even maximum square footage they will lend on.

This often rules out tiny homes and small condo units. As do their minimum loan amounts.

Some even have a cap on how big a home can be, and how many bedrooms it has. They prefer average sized ‘bread and butter’ deals that are easier and faster to liquidate.

Mixed Use Properties

There may be more mixed use properties being built, as well as many opportunities to buy now abandoned office and retail space, and convert it into mixed use.

It sounds like a great plan, and they can be great properties. Unfortunately many lenders don’t want to touch them. Especially when you are trying to finance a property which includes residential too.

These properties are much harder to finance, with big down payment requirements.

Acreage

Even though hundreds of thousands, if not millions of US households are heading to the suburbs, small towns and rural areas, many lenders are less interested in funding those properties. Some specifically prefer urban infill.

You may run into lot size caps as small as one acre.

Declining Vs. Improving Markets

Lenders guidelines are typically very specific about lending in improving and appreciating housing markets with strong supply and demand balance.

While many of the deepest discounts for wholesalers may be found in distressed markets, a declining market can be a nightmare for financing, with a drawn out process, repeat appraisals and more.

While most of the country is expected to keep growing this year, don’t be surprised if we see a dip in some once prime NY, CA, and IL markets.

Forbearance & Skipping Payments In The Pandemic

Many borrowers were offered the ability to skip payments on credit cards, car loans and house payments during the pandemic lockdowns. Some banks even automatically threw their borrowers into forbearance plans without them asking.

These plans were offered on the premise that they wouldn’t negatively impact credit and credit scores. Yet, some lenders are revising their mortgage underwriting guidelines to bar applicants with missed payments or that have been in forbearance plans, and consider them a loan default. Make sure your end buyers are aware of this before inking a contract.