While other people are waiting for the “bottom” of the real estate market my contention has been we hit bottom in August of 2008. As September and October drug on it became clear that the market had changed, maybe forever.
My focus has been on the stock market. In my opinion stocks have been over priced since 1998. between 1998 to 2001 the market became unsustainable. My feeling is that large corporations began shifting cash into Real Estate. They did it in kind of a neat way by building, lending, then being able to keep the properties at a discount. It may be a conspiracy theory, but it seems to make sense that huge multi national corporations never meant to “lose” anything.
Crash or bubble makes no difference here. The only thing to keep in mind is to control a Real Estate to own free and clear. The only thing you have direct ownership of is the property you can hold on to.
With all the talk about property prices falling we just aren’t seeing it. Like the stock market the housing market will take years to adjust. There are people today who are dumping properties with good location, and condition. A whole bunch of people converted stock profits to Real Estate in the boom years and have profits now beyond equity.
There are deals to be made, as there always have been, but today people are beat up and weary. This is a window of opportunity. My preference would be to get in a high equity cash position on properties with future upside potential. I have been talking a lot about wrapping first position loans with a large down payment, or having a seller carry back a second that can be bought down over a five year period.
What that looks like is a seller owes $300K on a property they want to sell for $425K. You can put down $125K or have the seller carry back a second position loan for the $125K at say 6% or 7% interest. You can have the payments be based on an amortization of 30 down to five years or 30 years with a five year balloon payment.
If you opt for the payment based on a 30 year amortization schedule with a 5 year balloon you should throw money at the principle balance early on to amortize the loan down quicker. A better idea is, depending on where the first position loan is in the amortization process, to throw money at the first position principle balance to get that to amortize quicker.
The entire idea I have is to keep the first position loan in place to pay it down quicker over the life of the loan. If you can manage to pay off the second or make it smaller so you can more easily pay it off when due that is better.
Keeping a high cash position in the property will help the seller feel more comfortable letting you handle his mortgage. The mortgage will still be in the seller’s name and they are going to want out of the loan. It’s best to have the loan administered by an escrow account. The goal is to get the property in a free and clear position.
This is being written in 2008. In 2010 the United States will be in the midst of the Census which is the largest mobilization of man power outside of war time. People will be employed, a new president will be in office, and things will look great on paper. You can sell or hold to pay down or pay off in the better times. If you have to refi that would also be an opportune time to do that, or maybe 2011.
Now is the time to position yourself.
