We haven’t seen such horrible financial news since the 1980s, when interest rates were nearly 20%. Some are even predicting that our current economic crisis will be worse than the Great Depression that followed the 1929 stock market crash.
And while we continue to see unprecedented volatility in the stock markets and money is tighter than ever, making it difficult enough even for those with an excellent FICO credit score and cash to invest to get real estate-secured loans right now (and forget getting a home loan on bad credit), there is good reason to start planning how you can buy real estate right now!
Some will call me crazy or stupid, but let me explain why I think real estate will be the best investment opportunity over the next several years and how you can get your foot in the door:
Reason #1 to Invest During this Real Estate Bust:
Real estate, like all free markets, moves in cycles … it just moves a lot slower than commodities, stocks, bonds and many other types of investments. History shows that real estate booms occur about every 7 to 10 years.
The last downturn in U.S. residential real estate was in the early-to-mid 1990s. That means we were very overdue for the bubble to bust, especially since the Federal Reserve bolstered the real estate market during the dotcom bust and ensuing recession of 2001-2003. By 2005 it was pretty obvious the market was oversold.
Reason #2 to Buy Real Estate Soon:
What else will you invest your money in as we enter 2009? Some experts are saying to buy gold and silver, but those markets are always volatile, offer no leverage and probably have peaked or are close to a peak already.
Stocks may be a good option but with consumers pulling back on spending and job losses looming on the horizon, demand seems to be headed even further down, which will put a squeeze on corporate profits.
Unless you are among the doomsayers who predict global economic disaster is ahead, keeping your money in cash or cash equivalents doesn’t make much sense either.
Reason #3 to Purchase an Income-producing Property:
Rents have increased steadily even as home prices have dropped; this is only logical since people have to live somewhere and if they can’t finance a home they have to rent. So, regardless whether you are a tenant or a landlord, it makes sense to invest in real estate.
Reason #4 to Buy a Home while Prices are Low:
Buy low, sell high … of course. It’s only obvious that real estate values will return; the only question is how soon. There isn’t a huge rush. You can’t time the exact bottom of any market and real estate is no different than any other market in this regard. Wait for signs that money is available again, home sales start to pick up and then you’ll know it’s time to invest.
Reason #5 to get into the Real Estate Market Soon:
We will never see U.S. home prices this low again. As far in the one direction as home prices soared during the boom, the pendulum is swinging even further in the opposite direction now. The reasons are many and complex, having to do with bogus derivatives in the mortgage industry, rapid increases in home foreclosures due to sub prime lending practices and other factors.
But the fact remains that this has created huge opportunities in real estate markets such as Florida, where homes that sold for $300,000 or more just a few years ago can now be bought for $75,000! Where can you find an investment opportunity like that?
Even if you can’t get a home loan right now you could just pay cash in some of the hardest-hit residential real estate markets. And in a year or 2 you can always get a loan, recovering much of the capital you have invested and re-invest it elsewhere.
I’m Convinced But Its Impossible to Get Financing!
OK, if I haven’t convinced you to invest in real estate, please stop reading and move on; your time will be better spent on something else!
On the other hand, if you believe that I’m right and real estate will be the greatest investment opportunity available in the next few years but you don’t have enough cash to buy even distressed properties without financing, then what? There are some solutions if you are scrappy enough and creative enough to think outside the box:
- Find partners with money to invest; if you know others who want to invest why not put your funds together and buy an income-producing property together?
- Find an investor who has a LOT of equity in their rental property who wants to sell and is willing to carry back the loan? This negates any problems finding a bank loan and even if the seller charges you 10% or higher interest rate, you’ll be getting in at such a low price and can refinance later that it makes sense to sharpen your pencil. This is how a lot of real estate investors got their foot in the door during the early 80s; this method really works!
- Look for a “hard money” loan; there are private investors with cash who are willing to lend you money at a higher interest rate. So, a bank may not be willing to make you the typical 80% LTV (loan-to-value) ratio home loan right now, but you might be able to finance 50% to 70% through a mortgage loan and the rest using a ‘hard money’ loan. And, again, when money loosens up you can probably refinance and repay that higher interest loan; the higher payments now may still be easily offset by the greater appreciation you’ll realize by investing at the bottom of the market!
In upcoming posts here on SurfRate, we’ll continue to discuss ways you can invest in what we see as the greatest opportunity real estate investors have seen since … well probably in our lifetime!