It has been my practice for the last 5+ years to do my best to advise and counsel real estate investors. As market conditions have changed several times in that span, of course my advice has shifted as well. My basic philosophy is Buy what you can afford while prices and rates are low, and this continues to be good advice. After all:
- The number of people who need homes to live in is increasing
- The available supply of homes is finite and not expanding
- According to a US Census Bureau survey, home ownership is down nationwide (see details below)
- People who want to own remains constant
- The majority of buyers are first timers
- Affordability has drastically improved, while financing availability has deteriorated
If this is you, it is the perfect storm:
- You have at least $100,000 or as much as $2.5 million you want invested in real estate immediately
- You have a high tolerance for the risk of buying property across the country you have not and will never see
- You may or may not want to become a landlord, but a looking for fast turn-around and high ROI’s
- Owning 20 - 30 properties short term while they are sold does not frighten you
- You are an active investor who would hire a trusted adviser to oversee a 3-6 month project
- Recycling distressed property to return it to homeowners appeals to you
- Avoiding all complications by not securing financing appeals to you
- A portion of your investment capital can be at work for 3-5 years or longer
US Census Bureau Survey results:
“The homeownership rate declined in 2008 for the fourth straight year according to the Housing Vacancy Survey, conducted by the US Census Bureau in conjunction with the Current Population Survey.
The home ownership rate for 2008 was 67.8%, down from 68.1% in 2007.
By region, home ownership in 2008 was highest in the Midwest at 71.7%, followed by the South (69.9%), the Northeast (64.6%) and the West (63.0%).” - Home Ownership Rates
The major problem with these types of investments has not been investors who meet the milestones listed above, but the companies who secure the property have had 3 major drawbacks:
- They could not acquire bulk REO or distress property below 60% of current value leaving insufficient margins for wholesalers or investors to implement a profitable exit strategy
- They have not had a reliable or tested turn-key process that worked to dispose of the purchased property by their investors
- They have not had a dependable relationship with suppliers to be able to acquire property on an ongoing basis at low discount prices.
Since the buyers are back in force and multiple offers on the lowest priced property is again common, there are now several companies with programs that have solved the 3 performance issues above. But you won’t find them advertising or taking a high profile in any way. They prefer to remain connected and committed to their long term, private referral sources, who seem to be able to supply them with all the business they need.
This is the best example “It’s not what you know but who”, and my strong advice is to protect those relationships that give you access to high ROI’s.