Long-Term Real Estate Investing in a Bad Economy
As you are watching the real estate market “crumble” and the deals multiply exponentially, you may be thinking to yourself (and any economist would agree with you) “A bad economy is a great time to spend money.” All political issues and platforms aside, for real estate investors this is nothing short of the bare, honest truth. When the market sinks, the deals come out and a buyer with cash has his or her choice of the lot.
However, you may not feel like you have that money to spend. Perhaps you are hesitant to sink your nest egg into a long-term real estate investment that all signs indicate could be complicated to get out of. This is not paranoid or gun-shy, as many real estate investing “gurus” would like you to believe. This is just plain common sense. Do not spend what you cannot spare. Fortunately, this does not have to mean that you have to pass up on the long-term real estate deals of a lifetime just because you do not have hundreds of thousands to spare in the bank.
If you want to invest long-term in real estate when the economy is bad, you will need to be flexible and informed. Creative financing is at its peak popularity right now because traditional loans are so hard to come by, which will make your flexible thinking a little easier to swallow for many sellers. So do not be shy about suggesting creative financing alternatives for purchasing properties. Do not forget that you have many options, including seller-financing, subject-to transactions, lease-option transactions and private money, to name a few. In addition, you should plan to spend a lot of time working on the down payment that your seller requires, since there may be a lot of upkeep or repair involved in the property that you are interested in. The down payment is certainly not a thing of the past, but unless you are buying with the help of a bank, a 20 or 30 percent down payment is unreasonable, and many sellers are settling for little or nothing or installment down payments just to get their properties off the market and off their backs. You need to think flexibly so that your seller can be flexible too.
Once you have the flexibility down, work on getting informed. If you are clear about the options that you can present a seller, then you will save yourself a lot of time and effort when you are tracking down deals. For example, if you know that you can put down 2000 dollars on a house but no more and that you want a subject-to transaction with a fixed interest rate of 5 percent or lower, then you will be able to target deals that appear to fit these criteria. Being informed about your options lets the seller know you are serious and will help them take you seriously even if you are suggesting things that they may not feel comfortable with.
In a lot of ways, I think this is the best market yet for real estate investors – whether they have cash to spend or not. Being educated and flexible is the key to real estate investing in any economy, but these traits will skyrocket you over the rest when it comes to snagging the good deals in a bad economy.
Peter Vekselman has been successfully investing in real estate since 1996. He has completed over 1200 real estate deals, owned a construction company, been a private lender, and owned a property management company. Peter currently works with clients all over the US helping them achieve riches in real estate investing. For more information please visit www.CoachingByPeter.com.
Questions and Answers
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The key reason why some firms thrive while some implode during an financial recession is still a puzzle to many people business-owning business owners. Some wrongly assume that all businesses should suffer via recessionary cycles. But the truth is that some companies are usually essentially recession-proof, and it is not necessarily because they are much larger, better known, or a lot more generously capitalized.
Companies like Arch Coal (ACI) and Massey Energy (MEE) watched his or her stock climbed.
One of the things that my clients most often ask me is very simple: “How do I spot a good long-term real estate investment?” While my answer often varies depending on the individual client’s personal situation, there are some things that nearly always indicate a good investment property. Since we have devoted a great deal of time to what does not make a good long-term investment property, now we will spend some time exploring what does generally indicate the potential for good long-term investment.
A subject-to transaction is a real estate deal in which the buyer purchases the property subject to the existing mortgage. This means that they assume the current payments at the current interest rates and their payments, present and future, are subject to the terms of the loan. This is an extremely useful and valuable tool to have in your real estate investing arsenal, particularly in the current market when traditional lender-financing is hard to come by.
As we’ve already discussed, part of successful long-term real estate investing is having an effective way to get out of the investment – preferably while generating wealth at the same time. Sometimes, however, you need to get out of a long-term real estate investment fast, which can create trouble for a real estate investor who only planned for a calm, prolonged exit that could happen at their leisure.
As the economy continues to be unpredictable and many experts aggressively disagree on how the state of the real estate market will trend in 2010 and beyond, there is one thing that everyone can agree on: Long-term real estate investing is the only guarantee.
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