Time to stick your toe back into real estate, this is a question that many are asking as the opportunities are plentiful, but could they still get sweeter. 2009 is continuing to develop in a very similar direction as 2008, and we are yet to see any short-term indications of a quick turnaround. In 2008, more jobs were lost in the US then any other year since there has been recordings. Home prices continue to drop in both the United States and Canada. With the stock market and Real Estate market continuing to suffer, US household wealth fell by 2.8 trillion during the 3rd quarter of 2008. The US economy and the US consumers have found themselves in debt. Now driven by fear the Consumer Confidence Index is at its lowest point in history and the only liquidity in the market is being created by the Central Bankers worldwide.
With all these challenges and the fear that things are going to get worse there has been worldwide credit crunch, making it extremly difficult for many to take advantage of these low interest rates and get a mortgage. This has significantly slowed down the sale of properties, and those who are in a rush to sell are having to do so at steep discounts. In 2008 we witnessed over 1 million homeowners entering into foreclosure, and simply walked away from there homes leaving this bad debt on the banks books. It is expected that there maybe a second wave of foreclosures over the next 18 months as the vast majority of mortgage resets are not taking place until 2009 and 2010.
The mortgages were granted to people, who provided no documentation and simply stated their incomes. The only way these people could make this process work is if their house values continued to rise and they could refinance. These borrowers were more credit worthy then those subprime borrowers in the first wave so it has taken them longer to default. We are now seeing a wave of higher end homes collapsing in price across America. The problem is that most of these properties do not cash flow so they are of no interest to most investors, and the banks have to hold onto them for much longer then they would like. The price spread between entry level homes and higher end homes is going to narrow in 2009.
For most investors there are very few areas they should consider investing in Real Estate at this time. Things you should look for are strong cash flow and huge appreciation potential. Some areas that should be considered would be Las Vegas, San Diego, some areas of Mexico, and certain REO’s through out the country. In order to get the steepest discount you will want to find an organization which are buying a large number of properties directly from the bank, and then selling these properties off to individual investors. The key to this is to find an investor who puts “eyes on roofs”, and is actually selecting only the properties which are sellable and liveable directly from the bank. There are organizations which buy these properties sight unseen, and they are always at risk of finding a dog with fleas.
Another area of interest is Las Vegas as the city is the first to collapse in a recession and the first to rebound as the market improves. You are able to find properties with strong cash flow in great areas, which are also set to see significant appreciation potential.
Keep your eyes open and look for details as they are out there and we will only be seeing more as we move forward. This is the time to position yourself for the future however you do not want to just jump with both feet, as this is the time to be cautious and use your due-diligence. Like Warren Buffet says, “be fearful when others are greedy, and be greedy when others our fearful.