First, some context. For most of the last half of the 20th century, real estate was a safe and prudent investment. Your returns, especially here in Silicon Valley, were almost guaranteed, unless you bought at the top of the occasional frenzy.
The last frenzy was probably the worst, and certainly wasn’t limited to California. When the tech boom went bust (and even before), a lot of money that traditionally would have gone into stocks went into real estate, something solid and presumably immovable. The idea of “irrational exuberance” shifted to real estate, and we saw the results in the form of 120% loans and relaxed verification of income. There was a lot of greed on the part of both buyers and lenders, and lest I forget to mention, sellers were happy to walk away with a lot of easy money.
What comprises this new mindset? For one thing, greed can no longer be a component of your investment goals. The new investor still wants a return on his or her money, but self-centered, me-driven greed won’t have a place anymore. Returns won’t justify it. Real estate will grow at a steady pace, but not a spectacular one.
I’m actually seeing a trend toward more altruism. With this new program Diving Into the Pool of Real Estate I’m working on, the investors are actually doing something for the common good. The program involves buying distressed properties in bulk, essentially, and then selling or writing them off as appropriate. The profits come in a variety of ways Six Ways to Profit From Distressed Properties, and the altruism comes from the fact that investors are helping lenders get back to some semblance of normal sooner.
Lenders like the fact that these “pool purchases” clean out the pipeline of properties they’ve already written off and have no other way of dealing with. They’re hamstrung by regulations that limit what they can do with the properties. But when the altruistic investor takes 100 properties out of lenders’ portfolios, they’ve created an enormous space for that lender to focus on the others. It’s a tremendous relief.
That’s not all there is to it. Because the cost of the houses is so low, investors can still get a profit selling to buyers who may not have been able to afford homes at the height of the boom. In some cases, buyers can offer mortgage payments that approximate their rental payments. They’re getting equity, but the investor can still benefit by holding the note if they wish.
It’s a win-win situation all around, something we haven’t had in real estate for quite a while.
