Everyone has their speculations on when the real estate market will crash again and most have an opinion on what they think the severity will be. Some say it could be within the next year while others are predicting it could still be years before we see anything major.
Except, no one knows when it will happen.
New investors voice their concerns to us about the fact that they’re worried about a downturn in the market. They’re fearful of it because most went through the last downturn and they saw what it did to the retail real estate market.
What they don’t realize is that while it was terrible for retail homeowners because of depreciation, foreclosures, and longer days on market, these aren’t bad things for real estate investing.
Simply put, when there’s a downturn, there’s more motivated sellers.
To be clear, we aren’t wanting to take advantage of people in distress. These homeowners are looking for a quick solution to their problem and when houses are sitting on MLS for months or they need to repair the property in order for it to be move-in ready and they don’t have the funds, they don’t have many options and an investor can be their saving grace.
Imagine being laid off from work and your $3,000/month mortgage is eating through all your savings. You had planned on updating your outdated kitchen and bathrooms with your next bonus check but now that’s not going to happen and houses in your neighborhood are sitting on the market for 70+ days with multiple price reductions.
What do you do?
Do you try to sell your property that needs work to a retail buyer who isn’t comfortable paying the true value of the property because of the market and because of the condition of the property and hope that it sells before you run out of money?
Or do you try to find an easy, quick way to offload the house so that you can start rebuilding your life without the high mortgage looming over your head?
Many people need the quick solution, even if it means taking a lower offer because they need out, now.
For a real estate investor, it’s much more common to find steep discounts in a down market.
So what do you do with the properties once you close on them?
Most investors will tell you that their exit strategies change in a down market. If they’re able to, they keep as many as they can for rentals.
In a down market, more people are renting because they’re in a temporary rough patch and don’t want to be tied to a mortgage.
Also, if you can buy a property at $50k and rent it out for $1,100, your mortgage will pay itself off quickly from rent you’re receiving AND when the market changes for the better, your appreciation will go up. Once the property is paid off and it’s a better market to sell, you might be able to sell for $150k, or keep increasing rent and allow your passive income to build.
It’s a very lucrative exit strategy, if you’re in the position to hold properties through the down market.
For rehabbing, sometimes you need to be the best property in the neighborhood to be seen in a down market. It’s critical to look at comps nearby to see what’s selling in the area and make the right decision on the level of rehabbing to do so you can maximize profits.
Financing will tighten up during a down market, throughout the entire real estate industry.
THIS is why it makes sense to get into real estate investing now.
Lenders are going to want to see your track record before deciding to lend to you.
If you’re a new investor trying to break through during a downturn, you’re going to be seen as a risk and most lenders likely will turn you down.
If you can show that you’ve been able to complete X amount of deals in the area and know what you’re doing, they’re more likely to lend to you.
If you’re able to invest during a “good” retail market, it will be easier for you to invest in a “down” market, as long as you’re able to secure lending based on your experience and you embrace the change.
Stop procrastinating and making excuses.
Take the first steps to getting your first deal done now, so you’re ready when the market shifts.