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.

New data suggests that the shift to the new remote work economy has been responsible for the bulk of house price appreciation.

How much can investors expect this to continue to add to home values? What else may compound this shift in equity and wealth?

60% Of House Price Growth Linked To Going Remote

Moving to remote work has created hundreds of billions in wealth over the past few years.

According to data from San Francisco’s Federal Reserve Bank, 60% of house price appreciation is directly tied to the move to remote working.

Even though we have already seen the majority of workers go remote, some still haven’t made the switch yet. Others are remote, but haven’t yet relocated. Leaving more room for this transformation to drive wealth creation.

The 1% Rule

Coverage of the data by Bloomberg shows a direct correlation between more workers going remote, and house prices. Saying that for every 1% that switch to remote work, house prices go up by 0.9%.

With 20% to 40% of the workforce still left to make the shift, there could be a lot more fuel for house prices left in the tank.

Where The Money Is Going

Of course, these house price increases do vary greatly depending on where remote workers are moving.

Where they are relocating to is seeing substantial house price growth. While the areas that they are snubbing and leaving behind are suffering equal losses.

This is clearly likely to be compounded by the need for affordable housing, and a desire for a better quality of life, less crime, and more enjoyable places to live.

It is true that a huge effort is being made to promote a return to the office. Mostly by those that don’t know how to operate and stay competitive in the new economy, or who have made misguided investments in office buildings which are no longer indeed. It is unlikely that is going to stick, even if they invest millions in hyping it up.

Investing

The big question for investors is whether they will be investing for the growth in the areas remote workers are flocking to. Or investing in the distressed areas where prices are going down, and negative equity is growing.

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.

 

Motivated sellers are what fuel the business for real estate investors. If your sellers haven’t been motivated enough yet, here’s the one thing that might change that…

There are lots of ways to find ‘motivated seller’ leads today. You can buy lists, search public records, subscribe to real estate software, knock on doors, run Facebook and Google Ads, and more.

If you’ve made any volume of contact attempts, you’ve already run into this issue. Homeowners who should be highly motivated just don’t seem very motivated at all.

It can be really frustrating. You put in a lot of time, sweat and money to connect with these people. You know they are in some form of distress. You know they need help and are far better off selling their properties to you right now. You even genuinely want to help. They just don’t seem to want the help.

They’ll make crazy excuses. They’ll ignore you. They will bury their heads in the sand and just wait for things to fall apart and get a lot worse. Logic just doesn’t seem to work.

What can you do about it?

In this phase of the real estate market there is one great tool at your disposal. One that can really create urgency and motivate them to action and taking your purchase offer.

It’s sinking home values. Not just national property values or values in their city. It is the value of their own home going down that can really spark urgency.

Reeling of statistics about the national market or what’s happening in the city as a whole really doesn’t hit home. It doesn’t seem real. Who cares if the national average home value dropped by tens of thousands of dollars last summer? Who cares that that New York retail properties are diving by 25%, or no one is buying new condos?

Though what if someone told you that your home’s value just went down by $10,000 or $100,000?

It’s a different deal, right?

All of a sudden that means they’ve just thrown away all that money and equity by dragging their feet on taking action. It means that could lose double that in the next few months if they don’t do something right now.

Now inaction can lead to all types of very real and close consequences.

Show them how their own property value has declined. Show them how it is likely to keep declining. You just might get their attention.

The final two steps to turn this into an actual deal are:

1. They have to trust you are the one to help

2. Make taking action with you easier and more pleasurable than the alternatives