This Corona Situation is creating some very interesting observations (especially in the real estate market). These are just my personal thoughts, and my own personal opinion, so please take what I say with a grain of salt since my opinion may be correct (but it also may be incorrect). However I am sticking with what I believe since one thing that I have learned from 2,000 and 2008 is to think Independently.
Some of my observations are not so pleasant (depending on who you are and what you do).
I am seeing more sellers cancelling their listings because they don’t want “strangers” going through their house. This is causing the number of listings on the MLS to decrease (not increase).
At the same time I am seeing no issues with FHA and Conventional Mortgages going through, and in fact appraisals have become more lenient. I think the Government learned a thing or two about the mortgage market meltdown from what happened in 2008. This time they are playing much smarter.
I am seeing more cash buyers backing out of wholesale deals (from wholesalers) and not closing. If you are a wholesaler with a deal under contract in the past month, the pricing has just been reset (sorry to be the bearer of bad news).
Selling at 85% of ARV is not going to work anymore in this market. Buyers are more cautious and are asking for a discount or walking away (and sometimes losing their deposit).
This is creating an OPPORTUNITY. You have the perfect combination of wholesalers more desperate to sell houses and slashing prices (because there are less buyers) and the potential ability for buyers to buy at lower prices. Take advantage of this situation if you are a cash buyer. If you are a wholesaler adjust your offers down and put a safety cushion margin of an additional 10% to 15% to keep yourself safe.
If your business model is wholesaling to cash buyers ONLY then your business is going to start feeling pain. And the pain is going to get much worse. You will need to learn how to be creative in this environment. Prices are being reset as we speak. You will need to learn how to buy on terms, and how to do creative financing, lease options, seller financing etc. You will also need to learn how to sell more houses for less profit (something we learned in 2008 and 2009). As a wholesaler I know says, “a small profit is better than a sharp stick to the eye”. Take the profit and cash the check. This is not the time to be greedy. This is the time for safety.
This crisis will flush out some of the weak players from the wholesaling game. If you entered wholesaling after the financial crisis (especially after 2011 when the market was booming) you may be a weak player). Slash your expenses now. You need to be lean and mean.
On a positive note (for wholesalers), This financial crisis is a worldwide crisis and people are worried about their money. Not every country has FDIC Insurance. Many emerging market economies are weaker, and some of their currencies are losing value relative to the dollar (look at the Mexican Peso as an example).
People in these countries that have money, want their money/savings held in a currency other than their own so that they don’t lose any more money to devaluation. For these foreigners buying U.S Real Estate allows them to move their money into a dollar denominated asset. Buying real estate for them is a huge dollar play and has nothing to do with real estate. For them it’s a lot safer than keeping their money in the bank (in their country). Foreign buyers will come. They came after the Financial Crisis in 2008. And they will come sooner than you think (just like they did in droves in 2009).
The Russians, The Chinese, The Europeans will all be looking for U.S Real Estate opportunities. If you are in Florida you have a huge advantage because foreigners love Florida real estate. So while we dip (maybe only temporarily) there will be huge opportunities to buy if you are a cash investor. All of these layoffs will create more foreclosures and short sales. The lack of inventory problem will go away. This is an opportunity too.
Don’t forget the big picture. We are still at record low mortgage rates and this is one of the best opportunities of our life time to take advantage of these low rates (for example I just got a 15 year fixed on an investment property at 3.25%) . Banks will still be lending. This is not 2008. And I don’t think this will become 2008 (in Single Family). Commercial is another story. And when I say commercial I mean office and retail (not multifamily).
I think the Amazon effect on retail, combined with stores being closed during this crisis (and or not being able to pay rent) will create a huge economic devastation in commercial real estate. Mall owners will suffer, and the banks that were big lenders in that space are going to have a tough time. Some may even go out of business.
With so many layoffs, and so many people working from home there will be huge opportunities (look at Zoom as an example). We broadcast our entire Fix and Flip Boot Camp last weekend via live webinar using Zoom Software and it was a game changer. Our students from all over the country (and out of the country) could watch in real time and ask questions live.
Companies that adapt to having workers working from home may choose to never go back to leasing office space (I may be one of them). Because of layoffs and downsizing there is simply too much office space and this sector will be hurting too. Maybe it can be converted into self storage or another sector that will be needed in this economy.
In residential real estate, there will be awesome opportunities to buy, repair, rent and refinance. There will also be opportunities to fix and flip. And all of these investors are going to be looking to wholesalers to supply them inventory (stay positive wholesalers). Nimble wholesalers with low overhead will survive and thrive in this environment just like they did after the last financial crisis.
There is a HUGE OPPORTUNITY to buy from motivated sellers right now. Motivated sellers are in panic mode. If you were motivated to sell before this crisis then you are even more motivated to sell now. Our acquisition phones yesterday rang more than they have ever rung before.
Sellers can no longer say “my house is worth X on Zillow”. That is so 2019.
Zillow stopped buying. So did Redfin and Open Door and Offer Pad. You want someone to buy your house now? You are going to need to get more realistic on your price, or take it off the market, rent it out and wait for better times. Either of those options is good for buyers (less inventory and lower prices).
Seems like the competition we most feared (Wall Street) is running scared. I worried about how Zillow, Redfin, Opendoor, Offerpad buying all of these houses would affect my business. Now they are gone (which means less competition).
If you are a cash buyer, position yourself accordingly and BUY.
But BUY WITH DISCIPLINE and buy at the right prices (or wait).
Big institutional lenders (I won’t mention any names) are running scared too. They are raising rates and raising fees and LTV’s. I don’t think that is a smart move in this market. That opens up a huge gap for other companies to potentially step in and own that space. I think the play is to keep rates steady, LET EVERYONE KNOW YOU ARE STILL LENDING and increase the loan to value ratio. That’s less risky for the lenders and it keeps the cash flowing.
Private Lenders are still lending. I have been borrowing money from private lenders since 2003 and I have lenders going back 17 years. They have received 9% to 10% on their money every single month for 17 years! One of my lenders mentioned to me yesterday that he logged his returns over 15 years on a spreadsheet and I was his best investment!
After the stock collapse, I have so many lenders calling me with money to put to work and I have to turn many away. They have nowhere to put their money right now and getting 9% or 10% secured by a first mortgage and promissory note on a single family home at 65% loan to value is not a bad play in this environment.
One of the reps for the institutional lender asked me (a year ago) why I didn’t borrow more from them if I flipped so many houses.
My answer was because “when you guys decide to stop lending” I will be up shit’s creek with one paddle. Case in point, look at how they are reacting now. Private lenders have, and always will be my bread and butter. I take care of them and they take care of me. I have financed my entire real estate business on private lenders and it has worked out great for them and great for me. It’s a win win. I pay them or they get the house at 65% of what it’s worth. Very simple. Unlike stocks which are complicated (even though everyone thinks they are not).
And for those of my real estate friends looking into buying stocks….
Please, I beg you…..
FOCUS ON WHAT YOU KNOW. FOCUS ON REAL ESTATE.
In the Chinese language, the word “crisis” is composed of two characters, one representing danger and the other, opportunity.
THIS IS AN OPPORTUNITY.
But at the same time it’s a crisis. And it’s going to get worse before it gets better. And for some people unfortunately it will be devastating. Many people will lose their jobs. Unfortunately Some of those people will not be rehired any time soon. And that is very sad. But as an investor your job it to react to the situation around you. Because this is an opportunity.
And things will get better. And you want to know why?
Because we live in the greatest country in the world – a country that created the word opportunity where people from all over the world come for opportunity (and freedom). And real estate in the U.S is the epitome of that opportunity. Real estate is the only vehicle that allows the average person the opportunity to become a millionaire. As Oprah Winfrey says. “You can’t live in a stock or a mutual fund. But you can live in a house or rent it out. Use this crisis as an opportunity to buy real estate.
Don’t wait to buy real estate, buy real estate and wait.
Education and knowledge is power. Use this opportunity to learn and grow. Learn to know what you don’t know. Learn new things. Read as much as you can. If you have ever wanted to learn how to wholesale or flip houses now is the time to do it. You can download a free copy of my book “Wholesaling Bank Owned Properties” on the home page of this website.
Use this time as an opportunity to get better.
I belong to a mastermind called “Collective Genius”. It has around 200 of the biggest and baddest real estate investors in the country. These guys (and girls) are very smart. Way smarter than me. Back in December of 2018 the theme at our mastermind was “Prepare, Position and Prosper”. Damn was that a good call!
That’s the value of belonging to a mastermind like this (if you are a real estate investor and you need an intro let me know).
Be strong. Don’t give into the herd mentality. There is more to life that watching endless runs of Netflix. Please stay safe and practice social distancing. I see way too many people being very casual. I think that’s a mistake (just my opinion).
And while you have time at home use it wisely. Enjoy time with your family. Learn how to cook and do something other than watching Netflix or the news.
Learn some new skills you will need them in this economy!
If you are brand new to real estate and want to learn more about wholesaling real estate and how to wholesale and flip houses, then please register for the free wholesaling real estate training at this link