Obviously it is, but how is it changing and what direction are we headed is the question most people are asking themselves these days. Some of the old school investors/realtors will relate to this article, but for most of you, this will seem like a radical new approach to real estate. You see, the changes I am going to be talking about or nothing more that real estate cycles coming back around full swing.
Over the last ten years or so, all you needed was a pulse and a few months to build appreciation in order to make money in real estate. That has changed drastically, today not only do you need a pulse, you also need a creative thinking brain. However, just having a pulse will not get you a mortgage anymore. In fact, I think the only way to get a mortgage today is to prove that you absolutely don’t need it, and then you have at least a fighting chance to get past underwriting.
Over the past two years, the real estate market has been going through a market correction, because of the over inflation of housing prices. Most of these properties have been either short sales or foreclosed upon by the banks and put back on the market at reduced prices. In many areas, prices have begun to stabilize and the new market values have been established. The first time home buyers tax credit helped boast these sales and stabilize prices. However, access to financing is getting harder and interest rates are expected to increase over the next few years. This will help to bring down prices of the surrounding properties over the next few years.
I don’t mean to paint a doom and gloom picture, even though some people will see it that way, I am just trying to explain what has happened and were I see things headed. On a positive note, I am excited about the direction the market is headed. We are getting back to the kind of market that we had 15-20 years ago. Markets like that are where a lot of wealth is created in real estate. Not a lot of quick cash like we had over the last 10 years, but real long term wealth, the kind of wealth that makes millionaires.
Wealth is made over the long haul, not from quick infusions of cash. The reason being is that markets like the one we are coming into forces investors to think creatively and structure deals for cash flow, principle reduction and long term appreciation. Seller financing, Lease Options, carry backs and other long term creative transactions create a steady income over time and investors get accustomed to living off the cash flow, and when these properties are sold, they are usually free and clear so the pay days are huge, less Uncle Sam’s cut of course.
So how can we start investing this way? I am glad you asked. Homeowners who have gotten a new loan within the past year or two, and will be getting in the future will be based on much lower prices than the current properties that are going through foreclosure. This will allow us to create seller financing transactions, just like we did in the 80’s & 90’s by taking over the new loans subject-to, lease options, contract for deeds and carry backs. I personally made way more money and had a larger inventory during the 1990’s then over the past 10 years. As a creative investor, it took me a few years to catch on and understand how to make money without using creative financing. By the time I did, it was too late and I lost a lot of money on the deals I did in the later years, just like a lot of other investors did.
The future is bright if you open your mind to what may seem like new techniques to you, but are actually tried and true techniques tested over the years. Get as much education as you can on creative financing and keep up to date on the current markets. If you keep trying to do real estate the way you have over the last ten years, you will be sorely disappointed and you will be one of the people who say real estate doesn’t work.
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