Bloomberg’s headlines recently announced that house prices just fell the most since 2009. Is that possible? If so, what do you do as a real estate investor?

Have House Prices Really Fallen That Much Already?

In contrast to Bloomberg’s report, Zillow data shows that while even hot markets have seen average home values falling a few thousand dollars month over month, they are still up by double digits from last year. Though there are many individual motivated sellers, companies, and banks accepting deep discounts from cash buyers.

If you lived or invested through real estate in the 2008 Great Recession, then you know that house prices can and did go down much, much more. They are likely to again.

How Far Can Prices Go Down?

If you owned property between 2006 and 2010, or know anyone who did, there is a good chance that property fell by as much as 50% to 70% in value during that time.

There are some exceptions. Slow growing, Midwest markets, and where home equity loans were limited to 80% LTV, like in Texas, may have suffered less severe drops.

Still, given that many buyers have recently been overpaying for properties by as much as 50% over top retail asking prices, this next dip could be even deeper than the last.

Real Estate Is Still The Best Way To Make Your Money

Those that are just now experiencing a rotation in the economy and real estate cycle for the first time may find this very scary.

It doesn’t last forever. Prices will rebound and surpass recent highs. At least according to what we’ve seen throughout history up until now.

However, if you didn’t plan for it, and don’t know how to navigate this part of the market, it can be shocking.

Fortunately, this is actually one of the best times to invest and make money in real estate!

There is a lot less competition, you can demand much better value deals, and terms.

How To Make, Not Lose Money In A Declining Market

There are several keys to winning in this market. One is making sure that your offers are low enough to be in and out, and make a profit, before the market catches up to you.

The next is to stick to wholesaling real estate. This means either flipping the contract without even buying the property yourself. Or buying and immediately reselling to an end buyer within 1-3 days.

You can lower your risk, and dramatically boost your cash on cash returns even further by leveraging and using transactional funding to finance 100% of your purchase price.

Check out these real estate statistics and data points…

$1.7M

That’s the price tag of a single public toilet being built in San Francisco. Construction is expected to take at least three years.

While on one hand it may signal that prime real estate is still demanding a high price tag, it is probably safe to bet that very, very little of this money will actually end up being spent on the toilet. Which could easily be built for 1% of that.

40 Years

One real estate company has made the headlines for their now notorious 40 year listing contract. Clearly not a great sign that they have any confidence in being able to sell the property.

In fact, customers have reported that they were lured in by as little as $900 in emergency cash to sign the listing, only to have their property end up in foreclosure, and owing thousands of dollars to the broker, despite losing their homes.

$870k

That’s how much of a financial loss singer Harry Styles took on his former LA home. He purchased it for $6.87M, then sold it for just $6M. It has now been relisted for an optimistic $8M.

98%

This is how many US based CEOs told the conference board that they are preparing for a recession over the next 12-18 months. That’s up to 99% for CEOs in Europe.

It’s unclear what the remaining 1-2% are basing their optimism on. The fear and reactions being made by these CEOs is almost certain to create a recession by itself. If they are only just beginning to prepare now, most of their businesses probably won’t survive.

The great news is that this is going to bring a lot of deals and negotiability for real estate investors.

50%

The latest data from Zillow shows that over 50% of home sales in SWFL are now completing for less than listing prices.

While prices still seem to be up by double digits over last year, values have peaked and fallen in all major markets in the region on a month over month basis.

It’s certainly time to make new offers and find better value deals than we’ve seen in a decade.

Hurricane Ian has again ignited the big debate over whether disaster prone areas should be rebuilt, or not.

This has yet again been another huge tragedy. The loss of life, and livelihoods, and entire lifetimes of memories and hard work cannot be taken lightly, and should not be forgotten quickly.

Still, while fresh at hand, it is an important moment to revisit this question. So, what are the arguments and math for rebuilding or not? What should investors, homeowners, homebuyers, and even renters be thinking about?

Refusing To Be Beaten

In many scenarios in life and business, including disasters, it is noble to refuse to quit, and to be determined to rebuild.

This can certainly be true of one time events. Or even ultra rare events. In fairness, some areas impacted by Hurricane Ian have been hit the hardest they have in 100 years.

Yet, there are many parts of the country, where hurricanes, blizzards, tornadoes, wildfires, and earthquakes are a common occurrence. Even having their own season every year.

If you really love where you live and own property that much, and that is worth more to you than the money and hassle of rebuilding, then no one should hold you back. Providing you are covering the bill, and not them.

With great insurance, or plenty of other investments elsewhere, this may not be a problem. You can have a brand new property. Which may be even better than the last one.

The Futility & Economics Of Rebuilding

At the same time, it is wise to remember that these events can be very regular and predictable. You may have to deal with three storms like this in a single year.

In many areas around the country incurring major damage is not a matter of if it is going to happen, just when, how often, and how hard.

In reality insurance never seems to covers enough. Even if you do get your claim paid it may only come after a long fight that lasts years. Along with lots of legal expenses. All while paying for somewhere else to live in the meantime.

For real estate investors it can mean no income from rentals, and dealing with no utilities for a month or two. With storms like this, it seems that no matter how strong homes are built, they can be wiped out.

It can be a vicious and expensive cycle. One which many have not priced in when they are buying property.

The Options For Investors

As an investor, this is a reminder to build in risk based pricing. Do the math on long term rentals, including if you have to rebuild at least once, and go another 12-24 months without income. Consider how that may change your offers.

Investors can help those deciding not to rebuild and moving to other areas that offer more sustainable living. Either by giving them good deals on housing where they are moving to, or acquiring old homes at a fair price for the current condition and flipping them.

They can be sold to those who are still bullish and wanting to rebuild or live there. Which, again is perfectly fine, if this is extra play money you can afford to lose every few years and the return on the experience works for you. If you have $1B in the bank, and it’s worth $10M every few years to have a vacation home with your perfect view, then why not.

Rehabbing is certainly questionable. There will be a lot of remedial work and dangerous mold to get rid of. It is probably better to wholesale properties as is. Especially in a declining market, with infrastructure issues, labor shortages, and high material costs.

Summary

There are arguments for both rebuilding and quitting disaster prone areas. Have you moved away, stayed, invested elsewhere , diversified better, or started using risk based pricing to account for these cycles?

Bank banks, fund CEOs, and even the Fed are all responding to the changing economy in different ways.

What are they saying and predicting? How are they reacting? What does it mean for real estate investors?

JPMorgan Tries To Go Back To The Office

JPMorgan’s Jamie Dimon has been ordering workers back to the office. Even as other multi-billion dollar companies and new startups are finding that remote work is far more productive and profitable, if not an advantage and essential in today’s economy.

Especially in real estate, experienced pros know that you don’t make money being in the office.

At the same time it has been revealed that the company is working on finishing a $3B office building in NYC. This and any other investments they have in retail and office real estate may explain why they are so desperate to sell this return to old workplaces.

Goldman Says Housing Market Will Flatline In 2023

Goldman Sachs forecasts that US house prices will flatline line with 0% growth in 2023.

Black Knight reports that house prices have already fallen into negative territory according to its data.

Meanwhile Michael Burry of the ‘Big Short’ predicts the stock market is headed for the ‘mother of all crashes’.

 

Bank Of America Goes For Broke With No Down Payment Mortgages

At least on the surface, Bank of America appears to be the most bullish on the US real estate market. They just announced that they will be offering 100% financing, no down payment home loans for buying in predominantly minority markets.

They must believe that the market is going to keep on going up, or they would be immediately losing their investors’ money.

Of course, they also made similar moves right before 2008, and then lined up for big bailouts from the very investors they hurt, as well as the homeowners they put in such perilous positions.

For Real Estate Investors

If you are tuned into the market, doing deals daily, then you already know the state of the market, even without having to listen to these pundits casting their vision and trying to manipulate it in the press. Though it is always interesting to see both what others are saying, and how they are reacting, while watching their motivations behind the scenes.

There is always money to be made in real estate. Perhaps far more in the current conditions we are in.

More than ever, succeeding in this market appears to be about pricing deals right on both the buy and sell side, and moving quickly in and out of deals before you are caught by changes.

Home sales contracts are falling apart at the highest rate since the depths of the COVID lockdowns in 2020.

Why are all of these pending home sales failing? What does that mean for you as an investor? How can you most profitably navigate this phase of the real estate market?

New Record High Number Of Contract Cancellations

According to new data from Redfin, the number of home sales contracts has hit its highest levels in two years. From back in the pit of the lockdowns when nothing was moving.

Both June and July saw increases in contracts being canceled. Nationally, that stands at 16% of all pending deals falling through. With some markets in Nevada and Florida seeing almost 30% of deals failing.

There may be a variety of reasons for this. Including lenders changing their minds after providing loan commitments, as well as rising interest rates which can kick buyers out in the middle of the process.

Buyers may also be canceling if they fear values may come down. If lenders see declining markets it can lead to a spiral in re-appraisals, lower LTVs, and even fewer contracts making it to closing.

Managing This Factor For Real Estate Investors

The number one thing this means for investors is that they need to build in these ratios to their numbers. If you put 10 deals under contract next month, only expect 7 of them may close. Or if your goal is to sell 20 properties a month, you may need at least 30 under contract to hit that goal. Expect this failure rate to increase as well.

One of the best strategies to beat this is to focus on real estate wholesaling. Meaning you don’t close on the buy side until you have it sold. This way you won’t get stuck with properties. Additionally, this strategy enables you to finance your acquisitions using transactional funding that doesn’t rely on appraisals to close.

In order to keep your ratio of contracted to closed deals strong you want to be extra diligent in vetting buyers and their offers before locking into them. Prioritize cash buyers, big down payments, higher credit scores, and faster closings.

You may also build in steeper financial penalties for those buyers that do cancel. For example, larger, non-refundable deposits, to compensate you for your time and potential losses if they cancel the contract.

You can also prevent issues by pricing your deals lower. Instead of pushing the peak of the market, list under market value to give them a better deal, and remove the risk of financing issues.

Within hours of new economic data being published last week Google searches for “sell my home fast” soared by 2,750%.

Is the state of the economy, direction of the housing market, and personal impact for homeowners finally sinking in?

What does this data and Google search terms really mean for real estate investors?

Is The Reality Finally Hitting Home?

On the surface this stat certainly suggests homeowners may finally be getting desperate to sell.

Many may have waited six months too long. Unless they act quickly and are willing to deeply discount their homes, they may find themselves in a downward spiral which sucks all the equity out of their homes.

Right now it still seems possible to sell fast, and get multiple offers. They may be lower and fewer offers. It is all about the pricing, and how it's marketed.

For Investors

It seems a great time to be throwing out offers and marketing to those now growing desperate to sell. But, should you be going all in on “sell my home fast” as a key search term in your marketing?

Remember that the data could be tainted by your competing investors searching for these terms too. They may just be checking out who else is marketing for that term.

Ask yourself what those who are serious about selling their properties really searching for online? Could it be “Realtors in my area?” Or “what is my home worth now?”. “How to sell my house?”. Or even “Impact of a recession on my house?”

Do some real keyword research before doubling down. Get expert input on what’s driving searches. Find high volume, low competition, high commercial value keywords.

Choose whether you will educate prospects and lead them through with breadcrumbs, or go for long tail keywords, localized search terms, and attract the low hanging fruit and ready to convert.

Unless you can outspend all of your competition on marketing, then you have to stand out from them, and strategically out market them. You can’t run the same keywords, ads, or website templates.

Summary

This new data hints that homeowners may be waking up to the reality of the new market. It could be a race to sell the fastest before the market goes down.

However, while there is seller motivation out there, some buyers are definitely out now looking for better priced deals, with less competition. If they are selling their home, they need to buy something else fast too.

Find a way to get in front of them and benefit from better value deals.

Most real estate is a collection of rights. These rights may be bundled or separated when buying and selling real estate. Which can substantially change the value of your investments.

This is a part of the industry which many investors overlook. Yet, it can be very impactful. It may become far more important to many investors in this changing market.

Especially for those who are embracing new niches, property types, and areas as they strive to keep up their deal flow and incomes. As well as when dealing with increasingly motivated sellers who need to move fast.

Real Estate Rights

There are many types of rights. Newer investors often take for granted that all of these rights are bundled together and are included in the purchase when they are buying property. That’s not always the case.

Some rights may be specifically excluded, or no longer owned by the seller. In other cases, just the rights can be bought, sold and leased.

By being alert to these factors, you may be able to strike deals where others fail to see the true value. Or be able to extract more value than just from the land and existing improvements. At a minimum, this awareness can save you enormous headaches and financial losses. You’ve got to know what to look for.

Types Of Rights

Oil and mineral rights can be a big one. In places like Texas, it may be very common for land to be sold separately to the rights to the oil and gas underneath it. Be sure you keep this in mind when looking at comps.

Water rights may be one of the most important. This can apply to water access and ownership rights. There have been notorious cases when waterfront property has been sold, only for new owners to later find out that they don’t own their docks or rights to water frontage.

Access to water under the ground is huge too. Whether it is for drinking or irrigation, rights to use that water, and how much can make a huge difference.

Air rights determine what can be built, and may or may not obstruct views from neighboring properties.

Rights of way and easements dictate access to a property. Either by the owners or others. Easements may make some of the land unusable. Or may be vital to accessing your property, without getting landlocked.

Think about these factors, and how you can work them into your checklists, or use them to create more value and income.

Netflix was a hugely successful business story. Sadly, like Zillow and other giants, they may now become most famous for their failure.

There are essential lessons to be drawn from their rise and fall. Leverage the good, and avoid making the same mistakes if you want your real estate investing business to grow, and avoid collapsing. Especially with the market changes on the horizon.

Unique Solutions, Adding Great Value & Convenience

These are the things that made Netflix, and put the final nail in the coffin of the physical Redbox and Blockbuster before them.

The price was low. Better than renting DVDs. It was convenient and easy to use. They were the leaders in the space.

Scale Fast, Grow Your Brand Name

Netflix leveraged and grew fast. They established their brand name as the verb for watching TV and film online.

They got big and seemed dominant. Then appeared to forget what it was that made them successful.

They started going in the opposite direction. It seems everyone else in the world except for the executives at Netflix could see the writing on the wall, and knew their choices were going to self-sabotage the company. It was just common sense. Unfortunately, their investors are paying that price dearly.

Don’t Sacrifice Your Most Loyal Customers

Like other multi-billion dollar companies that have steeply declined, one of Netflix’ most obvious mistakes was to begin sacrificing their most loyal customers.

Not only did they seem to stop innovating, but they began raising prices on their biggest fans, instead of rewarding their loyalty.

Raising Prices, While Stripping Value

Raising prices when it is necessary is one thing. Raising prices, and giving less value is something else. It is always a losing strategy.

Power users found little to watch, and were already interested in other competitors. Netflix basically forced them to the competition. Depending on your plan, you may be paying $16 a month for Netflix, and just $1 for Hulu. A service that seems almost the same, with more fresh content for new users.

Failing To Keep Innovating

Even if it is working right now, you can’t just keep on doing the same thing. If you aren’t constantly innovating, your company is going to die.

You must constantly be improving and offering new things.

Doubling Down On What’s Killing Your Business

Of course, the inevitable happened. People stopped using Netflix.

In just one day the company lost $54B in investor value.

Then at the time of writing this was falling off a cliff. Already having lost 5 years of gains, and with its stock price down by over 70%.

So, did they correct course? Offer more content and value? Cut prices to be competitive?

No. Instead they are talking about adding back in advertisements. Which we can get on regular TV if we want them. Or on YouTube for free. They are further cutting back on shows and the content they will offer.

It is a race to the bottom.

Learn from their mistakes, and what they once did well.

 

Canada has announced that it is banning property purchases by foreigners. That could be great news for US real estate investors.

Canada’s Bold Real Estate Policy Change

In an effort to cool its own property market Canada has chosen to ban foreigners from buying property in their country.

This new rule is expected to be in place for at least two years, to bring down housing prices. At the same time they say they are committing billions in government funds to build more housing.

Canada seemed to be one of the few to manage a soft landing and avoid the worst of the last financial crisis. Yet, they are now under new leadership, with a new game plan.

Good News For The US

Canada has long been one of the top global destinations for international investors and second home and vacation home buyers.

It was favored for its legal system, taxes, and stable market. Canada has put an abrupt stop to that.

Not only is this very likely to divert that capital and buying activity to the US, but existing owners are going to be desperate to sell too. They must cash out before the government crushes their asset values. That is even more money that could be flying south in search of real estate.

This also comes at a time when the US may need to fill the gap left by Russian buyers and investors. They made up a substantial amount of foreign investment in the United States.

Marketing To These Motivated Buyers

There is a lot that US based real estate investors can do to market to and connect with this new wave of buyers and investors.

One easy and low cost method may be to create strategic referral partnerships with Canadian real estate agents. They can refer their buyer leads who they can no longer serve. They can also refer sellers who are cashing out of homes there and need to reinvest.

It can also pay to get out ahead of the herd, and market to these buyers where they are. You can use Google Ads, search engine marketing, marketing in their languages, and salespeople who speak their language too. This can be especially important post-COVID when many are still not traveling.

Summary

Canada’s decision to ban and push away international investment will likely be America’s gain. Fast thinking and moving investors can use this to their advantage to scale up their businesses and move more inventory.

 

How can real estate investors use inflation to their advantage?

We all know that inflation has been breaking records. Yet, according to Treasury Secretary Janet Yellen, it could get far more extreme this year. She warns of “enormous” economic impacts from current crises.

This means that we could easily see the most furious rate of inflation in US history by the end of 2022. That is scary for a lot of people. For a lot of people who are not prepared and positioned for it, it should be.

Yet, it is also presenting equally unprecedented opportunities for real estate investors. Both to help others, and scale their own ventures.

Start By Preparing Yourself

Begin by insulating and positioning yourself for what’s coming.

Be sure you have revisited your budgets at home and in your business to account for inflation in your own costs.

Prepare your systems for scale now. Don’t get caught in the weeds, and sabotage this opportunity by being unorganized.

Free up more cash. Use transactional funding to do more wholesale real estate deals. This way you can maximize the number of deals you can do, while staying flush.

Determine who it is that you can help in terms of buyers and sellers this year.

Finding The Motivated Sellers

Property owners are being hit hard with inflation from every angle. Absolutely every expense is going up.

Note that this doesn’t just apply to homeowners, but also commercial property owners and businesses. Many of which have additionally been hit by lockdowns, riots and looting, and disruptions to their business models.

A big part of finding the motivated sellers now, is understanding where they are feeling the inflation pain the most, and how it will show up.

Alternative Leads

Instead of competing for leads based on the same data, consider alternative leads. Instead of REOs and foreclosures, how about leads on people trying to sell their vehicles because they cannot afford them anymore?

What about leads on those with large amounts of revolving debt sensitive to interest rate increases? Or those defaulting on business loans?

Targeting People To Market To

If you are mailing, using social media marketing, content marketing, or outdoor advertising and PPC, who will you target?

It could be owners of properties in HOAs who are raising their dues. Cities with even fiercer rates of inflation in living costs. Groups of the population hit especially hard by taxes. Or those heavily reliant on gas vehicles for work and everyday.

Motivated Buyers

Of course, to complete the cycle and turn deals into dollars you have to sell them too.

This could be targeting retail buyers moving to cheaper areas. Especially those cashing out lots of equity. As well as those now interested in using their equity windfalls to invest in real estate.

 

Could an increase in late and defaulting consumer credit and business loans lead to more distressed real estate opportunities for buyers?

Mortgage loan defaults and foreclosures ended up being far lower than expected in the wake of COVID. Rather than a deep crash, house prices and sales rocketed. A lot of stimulus, forbearance plans, foreclosure moratoriums, and a strong housing market has certainly helped this.

Rising Credit Defaults

New bank data published by DistressedPro shows that while mortgage distress has been slowly improving, other types of credit are seeing more late payments and defaults

Among these are spikes in business loan, auto loan and credit card defaults. There are tens of billions of dollars in these distressed debt pools.

All of these classes of debt were showing increases in distress at the end of 2021.

How People Pay Their Bills

Typically, when consumers get into financial difficulties they first stop paying their credit cards. Then if they still can’t keep up they stop paying their car loans. Finally, if businesses and individuals still can’t keep up they start falling late or give up on making their house and real estate payments.

We also saw an extra 29,000 unemployment claims than expected in the second week of February 2022. Suggesting the job market may not be as strong as some thought.

While some areas of the economy appear to be doing very well, some experts wonder if we are actually heading into stagflation. A period of the economy in which inflation is high, but the overall economy is stagnant, and not really growing. Those conditions make it harder for businesses and workers. Their costs go up, but their sales and incomes may not.

More Opportunity For Real Estate Investors

The above all comes together to suggest that there may be more opportunity for real estate investors ahead.

With a continued rise in home prices we may not see a big rise in REOs. Banks are likely to be able to sell off these non-performing liabilities as mortgage notes before they get to that stage.

Commercial and residential property owners may also be able to sell their properties in the retail market before they lose them. They may not get premium prices, but the recent surge in equity could leave plenty of value on the table for everyone involved.

Keep your eyes out for more motivated sellers out there.

 

Inflation in 2022 is expected to accelerate far faster than we’ve seen in decades. Even beating out the hyperinflation of 2021.

As a real estate investor you should be prepared to survive it, and understand how to leverage it to your benefit, instead of becoming a victim of it.

Transwarp Inflation

We are running out of terms to describe just how fast inflation is accelerating in the US. Some have started dubbing the pace we’ll see in 2022 as ‘transwarp’ inflation. Transwarp is about 8x the speed of light. It is a whole new dimension and laws of physics.

It is quite likely we will see mind blowing inflation over the next year. Price increases many didn’t think possible.

Consider that the Dollar General has been bringing in a new brand, called Popshelf, which targets prices around $5, instead of $1. Major food suppliers like Heinz are also increasing prices on some groceries by 20% in the first three months of the year. The actual retail price tag that consumers have to pay could go much higher.

In some places rental rates have gone up over 70%. Insurance rates have already gone up by 30% on many customers.

As a real estate investor or business owner you must anticipate these changes, and budget for them. Otherwise you could soon be in the red. Price in inflation on everything, including labor, software, marketing, title, taxes, interest rates, and utilities.

Property Prices

House prices have been growing even faster than inflation in some areas already. Property prices could go up much further in 2022. At least in some areas. Especially with ongoing migration and new covid variants. Use it to your benefit in flipping houses. Price it into your offers.

Distressed Inventory

Extreme inflation means many will no longer be able to keep up financially. At least unless they are also benefiting from COVID and the shifting economy. Such as  startup entrepreneurs, CEOs of big business, and real estate investors. That means the potential for millions more falling late on housing payments. This could provide much craved inventory for real estate wholesalers, flippers and landlords.

With the right marketing, connections and pitch, you can help out these property owners, help them exit to somewhere they can afford, and be well paid in the process.

 

While many real estate commentators have complained about a lack of inventory and high prices over the past year, others are finding that there are an abundance of deals to be done. It is just a matter of being able to scale fast enough with the inventory and demand.

The return of evictions, more migration, and availability of transactional funding are just three of the factors driving these surge, and enabling investors to hit new personal records year after year.

What Supply Shortage?

It’s true that it may be harder to find your favorite foods at the grocery store this year. Restaurants may be short on your usual menu picks. You may not even be able to find tires to fit your car. Yet, claiming that there is a shortage of housing or real estate deals to do, just isn’t true.

On the housing front many spokespeople have complained about limited inventory. Yet, there are still likely enough vacant homes across America for every homeless person to have two or more.

There are millions of properties under used, or that owners would be willing to sell, but which definitely are not listed on the MLS or Zillow or publicly advertised.

It’s just about finding the supply, or having the right connections.

More Inventory Is Coming

There is a lot more inventory coming too.

Millions, if not tens of millions of workers in America have reportedly quit their jobs this year. That is on top of all of those laid off since the beginning of the pandemic, and those being fired for choosing not to get vaccines and booster shots.

One new survey even suggests that 95% of those in old jobs want to quit. Specifically in favor of remote work from home jobs, more meaningful work, and to live more balanced and full lives.

For the vast majority, this is going to require moving. Moving to new destinations with more affordable housing, larger properties, and less urban.

We’ve already seen this in action, with tens of thousands of people heading into southern states each day. As well as not only a double digit increase in people leaving states like California, but a 45% drop in people moving in.

Then we have regular homeowners interested in cashing out at peak values while they can. Plus, landlords finally being able to evict non-performing tenants after moratoriums. Many of whom will never want to lease out their places again, but who know their properties will be more valuable on the resale market if they are empty. While these evictions may still be near 50% below pre-pandemic levels due to backlogs, they have been increasing by double digits every month.

Summary

Millions of properties across the US are there for the buying. Millions of US households are eager to move. To leave behind their old places, and find new ones.

This is unlocking housing inventory in previously hot areas, and demand for new areas with lots of low priced inventory, lots of activity and value to be traded. Make the most of it while it lasts.

 

Paying all cash or obtaining traditional mortgages may be becoming even tougher for real estate investors. Especially for home flippers and property wholesalers. So, what is the best way to fund your deals now?

The Traditional Mortgage Market

The mainstream mortgage market has never really fully recovered from 2008. In fact, lenders have only become tougher recently.

One of the most significant red flags recently has been Better mortgage which just laid off over 900 employees, citing issues with the mortgage market.

While non-bank lenders have grown to account for over half of mortgages again, the new breed of so called private money and hard money lenders in the market today still typically have tougher underwriting criteria than traditional banks prior to 2008.

If they incur more losses they will only toughen up further.

This makes traditional mortgage financing inefficient and a source of frustration for investors. Especially, flippers and wholesalers.

Interest rates are also only expected to go up from here.

More Scrutiny Of Cash Real Estate Purchases

This December the Treasury Department announced that it is working on even more regulation to track and dig into cash real estate purchases.

This comes after the government began tracking payments as small as $600 under the stimulus plan of early 2021 according to Airbnb. As well as the new spending bill which gives the IRS an additional $80B budget for enforcement.

Until now additional scrutiny was only focused on cash property purchases of $300k and up in a select number of metro areas. This could now apply nationwide across all price levels.

Even those doing nothing wrong just may not want to be at the top of task for and IRS lists for investigation. Creating more motivation to find other ways to fund real estate deals.

Transactional Funding

Transactional funding is still available and continues to emerge as the best way for funding wholesale deals.

It comes without all of the hassles and hoops of traditional mortgages. No credit score, appraisal, income and asset requirements. Plus, it offers 100% financing, including closing costs. All with the ability to fund deals in just a few days.

This also dramatically boosts ROI, and the scale at which real estate investors can operate.

How will you fund your deals this year?

 

The three most important days of the year for investors are upon us. Will you make the most of them?

Tax refund season may fuel renters and retail home buyers with down payments and moving money. The summer may have traditionally brought peak home buyer season in many destinations. Fall usually brought a dip in asking prices and more negotiability for wholesalers. While the end of year brought a sprint of closing as individuals and businesses sought to save on taxes.

Yet, this year, we have three extremely pivotal days that investors should be leveraging to their fullest. Don’t miss out.

Thanksgiving

No matter what your beliefs about this traditional holiday or how you’ve celebrated it in the past, this is a powerful day for leveraging the value of gratitude.

If you have already experienced its value in your life, there is even more reason to make a whole day for it. If you haven’t made it a part of your daily success habits, use this day to kickstart it.

Dig into all the things that you are thankful for. Go deeper and broader than you can with a few minutes each morning. Consider all of the opportunities to be grateful for.

Black Friday

Black Friday may prove even more pivotal this year. Sure, there will be some people who live all year waiting for Black Friday. Especially retailers, and individuals who really should be doing anything else but splurging on unnecessary items.

This year may prove to be more pivotal, with so much hype about scarcity and such extreme price inflation manipulation.

It is a day to lead by example. Are you going to be sold and fall for the mayhem? Or are you going to use your funds to make smart and profitable investments? Find sales on properties, or be the one benefiting by selling a lot of them on Black Friday.

You can bet there will be plenty more sales through the end of the year, and the beginning of next year if you need to go retail shopping.

Giving Tuesday

It’s been Cyber Monday every day since COVID restrictions came along. Amazon and Apple will be just fine without you spending even more with them for a day. American Express will also be okay if you don’t use their cards to splurge on Small Business Saturday. It’s worth supporting small businesses, but Giving Tuesday may be even more impactful.

If you like you can even give grants to others to start their own small real estate investing businesses this Tuesday.

With so much to be grateful for, and so many deals you could have been selling on Black Friday weekend, you as a real estate investor are probably one of the best positioned to give.

It doesn’t just have to be a handout either. You can give for charitable tax deductions. You can give investments to your family and friends. Or you can give the gift of knowledge of real estate investing to others so that they have more to give next year.

 

There is great news for real estate wholesalers who are looking for more inventory. Zillow’s collapse also means that it is shedding thousands of properties for less than they paid for them.

Zillow’s Flawed Products Finally Catches Up With It

There are certainly many real estate investors who are cheering the recent announcement that Zillow is imploding. They have plagued the market for years with a horribly broken data tool.

It turns out that same tool has now finally been their own downfall. After going all in on house flipping, they have announced that their inability to calculate house prices has effectively put them out of business. Effectively wiping out $30B in market value for stock investors, and leading to layoffs of at least 25% of their team.

Without house buying, a Zestimate and data business, and having continued to lose hundreds of millions a year, despite billions in sales leaves little of a company left, if anything.

Zillow’s Implosion Vs. House Flipping

Where Zillow failed many others are thriving and are experiencing their best years in real estate ever.

Obviously, understanding your property values, to make smart offers and re-market them well is absolutely pivotal to success. Something Zillow has finally admitted it simply cannot understand.

Aside from understanding property values, you also have to have a business model that works, and to add more value than others. Yet, Zillow Offers neither offered a great process for sellers, or offered competitive rates. In fact, they tried charging sellers far more in commissions than full priced Realtors.

Fortunately, now regular wholesalers not only get to enjoy less competition in the marketplace, but also the opportunity to scoop up thousands of properties the failed internet company needs to sell at a discount.

Lots More Inventory Coming Down The Pipe

Zillow will probably prove to be just the first in this domino chain. Other large iBuyers and their backers will probably take note of this, and feel better about admitting defeat or will be scared off as well.

That could mean tens of thousands if not far more in discounted deals coming. While investors with capital are going to be looking for new ways to buy into this space.

Now is the time to develop relationships and position yourself to get these deals.

When you sign them, we’re here to fund your deals for you...

 

Generation X now holds most of the wealth in the US. How has this shift of wealth changed? What does it mean for real estate investors?

For years many have been proclaiming how important it is for real estate professionals to be marketing to millennials and even Gen Z. Others have focused hard on Boomers and their parents. It is true that Gen X was among, if not the hardest hit in the 2008 financial crisis. Now everything seems to have changed.

Rapid Wealth Growth

The big headline last year was how the world’s billionaires grew their wealth by around 50%, or $4T within just months of COVID restrictions beginning.

Now the latest data shows that Gen X has also been a huge beneficiary over the past two years. They’ve seen their net worth rise by 50%, and now control more wealth than any other generation.

Gen X households now control more wealth than boomers. While just 5% of the nation’s wealth is in the hands and accounts of millennials.

While many in the US reportedly lost all of their savings during COVID lockdowns, Gen X has not only recovered from the previous financial crisis, but appear to have learned to thrive through crises.

Both inheritances and the appreciation of their wealth through real estate has certainly helped. The current outlook should mean an even greater wealth transfer to this generation.

What It Means For Investors

There are three big takeaways for real estate investors from this new data.

The first is who now has the capital to invest. If you are raising capital in addition to financing properties, then Gen X is likely to have the largest pool of investable capital.

Second is who is buying properties. Gen X may also be selling inherited properties and old homes as they move up or migrate. Though they also now appear to be the strongest group of buyers of investment properties.

Thirdly, it follows that real estate investors and businesses should be positioning and marketing to Generation X. This may require some revamping of strategies in terms of the homes you are making offers on, the rehabs done, and the platforms that you advertise on, as well as the language you use in your marketing. Yet, making these key adjustments now could make all the difference in your own level of success and wealth.

 

How do real estate wholesalers need to be adapting to doing business in the new normal?

The market is better for real estate investors than it has ever been. Though things are undeniably different now. Some things may still be the same. Though the COVID lockdowns and new rules have certainly changed the way we live for at least another generation, and the way we work forever.

Between new data showing that Moderna now admits those who got its vaccine last year are now twice as likely to get COVID this year, and teens as much as 6x more likely to end up in the hospital with heart conditions as a side effect of the virus, compared to getting COVID, don’t expect us to go back to the old normal any time soon. Even more so with new coronavirus variants which are expected to be more contagious and vaccine-proof.

The New Normal

Although things will continue to evolve, now that we have begun settling into the new normal, we are getting clarity on some of the ways life has changed.

We now have:

Ongoing foreclosure and eviction bans

Ongoing stimulus

High inflation

Rising taxes

Almost exclusive work from home

Enhanced wealth distribution measures

Strict travel and access rules

So, what does it all mean for investors?

The Divided States of America

The country is now significantly divided by COVID related rules.

Insure My Trip recently published a state by state list of rules, including ongoing inter-state limitations and quarantine and testing rules.

Dr. Fauci has even supported mandatory vaccination for domestic air travel in recent days. If passed, that could easily apply to all types of travel between states.

Some states and cities are strict, only allowing those vaccinated to eat out and enjoy entertainment outside of their homes. Even dictating mandatory vaccines to keep businesses open. Others are completely free, with no restrictions at all.

The outlook seems to be far more divided.

For investors it may be wise to begin finding more in-state buyers. Out of state buyers may become more cautious. Or you may wish to focus on a different set of buyers. Those who are exempt from the rules, and travel restrictions. Think celebrities, politicians and the uber wealthy.

Health Protocols

Stay stocked up if you want to stay in business. If you want to be networking, hosting showings, etc., be sure you have plenty of masks, sanitizer and cleaning supplies. Hoarding is bad. Being prepared is smart.

The Nomadic New Norm

Since the onset of the pandemic lockdowns we saw places like Manhattan lose 40% of their population. People started moving back last year after landlords offered cheap rental deals. Now those landlords are asking 70% or more for lease renewals, and many may leave again. Especially, as people give up hope of ever returning to the office again.

Except more of this back and forth migration as people look for housing deals and find the right balance in living conditions.

In Demand Features

What people want in housing is changing too. Priorities may now be on amenities like home delivery, fast Wifi, and more space.

 

Almost 65% of millennials now regret their home purchases according to a new Bankrate survey.

This may be a shame for all of those who got caught up in the home buying frenzy of the past year. Yet, it also signals some new opportunities for real estate investors as well.

Homebuyer Remorse Grips Millennials

According to the data the majority of millennials now regret buying homes.

Some of the top reasons they are giving for this distress include:

• Additional homeowner expenses like maintenance costs

• Buying a home that is too big or too small

• Home mortgage payments and rates too high

• Buying in a bad location

• Overpaying for their homes

It seems millions just jumped into the market on a whim, without really thinking the decision through, doing a budget, analyzing what was important in a home, or educating themselves about the market.

How Wholesalers Can Help Out

In many scenarios these homes have quickly become a burden for homeowners. It’s now just a big payment each month. One that prevents them from enjoying the life and freedom they really want. It’s stressful. For a lot of homeowners it may be unsustainable.

As a real estate investor you can help them out. Even if they bought at the peak of the market in the past year, soaring inflation and frenzied competition means those properties could easily have 20% more equity in them now. For some, that is enough money to make a decent profit on wholesaling them.

All many of these owners probably want is enough money out to go move into a nice rental.

Some won’t act in time, and unexpected maintenance, repair and property tax bills will bankrupt them. That can turn into nonperforming loan notes and REOs. Both of which can be buying opportunities for investors.

Wholesaling To Landlords

Equipped with this information and facing a changing market, investors may want to expand or change up who they are reselling properties to.

Many retail buyers are getting priced out of the market. It is true that interest rates are low. Yet, recent data shows that it will now take South Florida homebuyers 17 years just to save up a 10% down payment. That’s 34 years to save a 20% down payment. That could certainly lead to a decline in homeownership.

While many rehabbers have been sitting on the sidelines during the pandemic according to ATTOM Data, and will continue to due to hyperinflation of construction materials, other types of buyers are scaling up.

Buy to rent landlords are growing as fast as they can with cheap money, and in anticipation of a new wave of renters coming to the market. These end buyers may have lower profit expectations, and are likely to be bulk or repeat buyers too.

 

If you are wholesaling real estate, it pays to know where rents are rising the most, versus where they are crashing.

Some real estate investors and home buyers in general are having a harder time finding properties to buy with the white hot housing market.

Fast rising, hyper competitive markets like this can be great for real estate wholesalers. You can often buy at retail prices and sell for more the same day. The danger with that is getting caught holding a lot of overpriced dead weight as the market turns. That can bankrupt you.

Ensuring that you have a more sustainable business that won’t leave you hanging out to dry is smart. So, for those looking for better deals with quick exits, where do you look?

Where Landlords Are Buying

Retail buyers can be fickle, and by the time the data comes out revealing they have left the party it is usually too late to correct your buying strategy.

While selling to retail home buyers can provide premiums, selling to flippers and landlords can be a higher volume and more consistent business and income stream.

Right now landlords can afford to pay more than ever as they are rich with cash capital and technology is helping them to operate more efficiently and profitably - creating better yields on pricier deals. Investors tend to keep on justifying buying at higher prices after retail buyers are priced out of the market.

It’s also worth noting that landlords are storming into the single family market more than ever. They are even buying out whole new home communities. According to Globe St. the SFR market is now worth $3.4T, just behind MF at $3.5T, but the gap is closing.

Follow The Rents

Landlords are chasing rents, cash flow and yield. So, rent performance can be a great indicator of where landlords are going to be looking for deals, and where your deals will be easier to market.

According to Seeking Alpha the average US monthly rent rose about 4% over the past year.

However, there is great disparity between markets that are crashing versus rising. Rents are now down almost 9% in San Fran and NYC. Declining rental rates can also be found in Seattle, Boston, DC, Chicago, and Minneapolis.

Among the fastest growing markets for rental rate increases are Memphis, Tampa, and Phoenix. Riverside, CA has seen rents up by almost 12% as people flee expensive dense urban areas like LA and the Bay Area.

You may also choose to check out many of the more modestly growing markets that may not have peaked yet, and offer the most room for growth and sustainable growth ahead.

You can wholesale your deals raw as-is, provide units already occupied with tenants, or offer turnkey deals.