NOW Is A Great Time To Buy Real Estate | Real Estate Investing

Now IS the time to be buying real estate.

Here is my thinking: Can you remember a time when people were SO negative on real estate?

Add to this the looming shadow inventory, historically low consumer confidence, financing issue and the end of the traditional ‘home buying season’ all point to incredible buying opportunites.

All of this negativity means less competition.

Of course, there are headwinds. Biggest challenges most would-be Donald Trumps have now is: Financing. If you have cash…or can get a loan….BUY NOW (and over the next 6-12 months.)

Here is my basic no-brainer formula to evaluate a property. Rules:

1) Will the cash on cash ROI be at least 7%? (if financing, there must be at least a 6 month cash reserves account to cover vacancies)

2) Would a potential home buyer pay MORE in a monthly payment (assuming 10% down, 30 year fixed rate) or about THE SAME as area rents?

3) Is the area stable?  In other words, even after years of this real estate mess is this neighborhood still desirable. Schools, crime etc

I will use a real life example of a Las Vegas condo we are going to make an offer on:

1) Purchase price, $140,000. (Sold in 08 for $450,000)

2) Area rents for this unit, $1700.

3) Condo fee and taxes, $400 per month.

Net monthly income: $1300.  Annual income: $15,600. (Yes, I know this doesn’t take into account all the usual what-ifs).

So, the question is what percent of $140,000 is $15,600?

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Well over 10%. So, even with a few months vacant…not an overall bad return. Notice, I am NOT even considering any hypothetical increase in ‘value’ due to inflation.

BOULDER, Colo. (MarketWatch) — The recession is “officially” over according to GDP figures. Stocks are up 50% from the March 2009 bottom. Gold and silver are up dramatically, too. So what’s the only remaining asset class that’s still cheap?

Real estate.

Sure, in most parts of the country the market is still in the toilet. July marked the 17th straight month foreclosures exceeded 300,000, and the number of homeowners who lost their homes rose again on the month. But real estate is always a local market and different cities, neighborhoods and individual houses will bottom at different times. And now is that time for many areas. Read about five reasons the bear market isn’t over.

Most of you will think I am way early on this recommendation, but here are three great advantages to buying today:

Desperate sellers. Not the homeowners, of course. They already know they’ree toast. It’s the banks that financed the mortgages that are desperate. Everyone in the workout department has stacks of folders on their desks, their credenza, the floor — everywhere — all needing attention yesterday. That gives the few buyers out there big leverage.

Little competition. Most people don’t have the patience and energy to push through a pre-foreclosure, short sale offer or a post-foreclosure real estate owned (REO) offer. Most real estate agents don’t want to work that hard to get a deal done. But as with many things, those investors willing to be patient and do the work will reap big rewards down the road.

Excellent point. Julie and I have been making offers on homes and condos for the last few months. 9 times out of 10 the agent representing the seller has NO CLUE how to do the short sale.

Yes, I know what you are thinking…”Tim, Harris Real Estate University is the original and largest short sale education resource in the market…tell the agents how to get the file closed”.

And that is exactly what we are ending up doing. Literally, closing the files for those agents (Of course, we are requiring them to enroll in the new advanced Accredited Short Sale Designation coaching program.)

Low financing rates. If you believe major inflation is coming — and I most certainly do — getting 4-to-1 to 32-to-1 leverage at a low fixed rate of interest is like having someone give you money. As of this writing, rates for 30-year fixed mortgages are an incredible 4.5%. That’s the lowest in 39 years, and a new bottom seems to be set each week. Read about three ways to profit from the coming China crash.

Agents…potential investors…everyone. Never again in our life times will rates be this low. Wade through all the real estate doom and gloom and make the decision to buy now (and over the next 6-12 months)

These trends point to a bottom. And if they’re not enticing enough, remember that you can make $500,000 tax-free in as little as two years by buying and living in a short sale or REO home — while either renting out your current home or simply changing your primary residence on the tax rolls. Then you sell the foreclosure and move back into your current place with a hefty payday.

With the summer winding down and Labor Day around the corner, now is the time to seriously consider making a low-ball bid on a distressed situation. Real estate is seasonal, and after September the buyers will be even scarcer as cold weather and the start of the school year slows down house hunters.

Mid-Term elections will also be a massive distraction. In other words, buy now and over the next year or so.

Understand, I am not suggesting any sort of rapid ‘re-appreciation’ of home values. We are in this real estate market cycle for at least 10 years. What I am suggesting is that in certain areas…and price ranges…we are at the bottom. (See my rules above). Will there be more DEpreciation coming..you bet. More expensive harder to finance properties are going to fall. The McMansion era is OVER.

DON’T buy for the hypothetical appreciation. Buy for cash flow. IF there is any increase in cost (due to inflation) then the paper value of the property will inflate as well.

There are risks, of course, and not all houses make good investments. So how do you make the best buy?

A short sale is usually the most attractive way to buy distressed property, but also requires the most patience dealing with the hapless pre-foreclosure department at the lender. Before the actual foreclosure, you make an offer to buy the property for less than the mortgage loan. Most homeowners are eager for this because it is less of a hit to their credit report, and typically when things get so near to foreclosure there is no way for them to stay put anymore anyway. If they need some enticing, you can offer to pay their moving expenses or even buy some of their personal property such as appliances or the lawn mower on the condition they don’t trash the place before you move in. Read about eight five-star mutual funds trouncing the market.

Start by researching the original sale price to the owners. Troubled loan departments at Bank of America Corp. which took over Countrywide, or J.P. Morgan Chase Co. , which sucked up Washington Mutual, will usually take an offer equal to 80% of the loan without any argument.

Don’t agree with this point. Original sale price isn’t considered for the most part. KNOW the current market value based on the most recent sales.

Obviously, if you are looking at a property where the borrowers paid top dollar at the peak of the market and got a 100% loan, you might have to offer as low as 20% to 30% of the original mortgage to get a good deal. You should always start with a lowball offer and make them come back to you with a counteroffer, but the bigger loss the bank is faced with, the less eager they will be to avoid a foreclosure auction.

Don’t agree with this point either. Know the market. (The bank does) If the most recent SOLD comp is the same price (more or less) as the subject property then make an offer close to asking. Its a myth that the banks will take radically less than market value. They won’t. Additionally, you are competing with other investors who will know the true market value. Remember, you make money BUYING real estate not, selling. Pay too much going into the investment and you are going to become real estate road kill.

Real Estate professionals (and consumers)..its up to YOU to know the true SOLD comps. Use the most recent SOLD comps only. Do your research on the HOA (if any), the debt situation on the property (do a lein search) etc.

Second, get permission from the current borrowers to contact the bank’s short sale department directly. The major banks’ short sale people obviously were hired off the street for $10 an hour just to deal with the flood of paper, and most of them sound like they are 22 years old and still live with their parents. They have little or no knowledge about real estate, so be patient and realize that this inexperience will ultimately allow you to get a great deal.

Not touching that one with a 10 foot poll.

Work ONLY with an agent who is truly educated and trained to do short sales. Be weary of the flood of agents who claim to be ‘experts’. Challenge the agent you are considering to provide actual proof of their experience closing short sales. Regardless if they are the listing agent or a buyers agent only work with Realtors who know what they are doing. Short sales are not like normal sales.

HREU Students..share your comments on this point and by all means include your contact info in the comments so that potential buyers can use you.

Harris Real Estate University does have a referral program. If you need to find and Accredited Short Sale Designation (ASD) agent in your area email: Ruschele@HarrisRealEstateUniversity.com

Third, make sure you know the exact foreclosure date. The short sale people do not talk to the foreclosure people, who are something like an army of locusts mindlessly marching through a wheat field. Most likely, about three days before the foreclosure sale, the short sale people will panic and accept your low bid. If not, the foreclosed property will be handed over to the Real Estate Owned department and listed with a realtor, where you can make your offer again. Read about 10 dividend aristocrats that have paid dividends for as long as a century.

Of course, there are many other considerations that are typical to buying any home — getting an inspection from a contractor, checking legal and insurance information, and not falling in love with a property just because of the price tag.

99.9% of all sales will be as-is. So, inspect away…but know that the bank won’t fix anything wrong with the home.

Investing in a short sale or REO home right now is certainly not easy, but the incentive of $500,000 tax free makes the move worth it for many. That figure comes from the husband and wife exclusion for the tax on the capital gain of a primary residence in which they have lived at least two of the prior five years

Potential investors: TIP: Search out the agents in your market who are listing and selling bank foreclosures (REOs). They will have access to the homes that will be hitting the market next as REOs. Ask REO agents what homes they have in pre-marketing.

Agents, learn how to BECOME the agent with the bank foreclosures (REOs). Its not too late for you to become a REO listing agent. Watch the FREE Agent REO Secrets video and download the FREE REO how-t0 book now!

To make the full $500,000, you’ll have to buy something nicer than a $150,000 house on a suburban lot, and get a heck of a deal. But it’s not impossible. I have noticed that some good-sized houses on golf courses have gone into foreclosure, with the last transaction price maybe $800,000 and a $640,000 mortgage. If you buy that for 35% off, you pay $416,000. When inflation takes off, you sell it for $975,000, take your half a million tax-free and go home after two years.

Not a bad deal.

Michael Murphy is the editor of the New World Investor stock newsletter.