Whew…..
I think we’ve reached a point were the elevator has at least slowed it’s descent -if not come to a halt for the time being. I am seeing pockets of stability, multiple bid situations, and anxious home buyers in our local Charlotte North Carolina real estate markets. Both real estate investors and home buyers are dipping their toes back in the water.
I don’t know the exact terminology; however, I feel we are at a point like a sailboat facing dead into the wind. The main sail is rippling back & forth -yet not catching a gust to give a clear cut direction of which way its going to go. Now its just a matter of cycling through our excess supply in housing that’s available for sale and muddling through the shadow market that will hit at various phases with homes people are holding onto until their specific market criteria are met.
I’m seeing pockets of success both in the wholesale and retail markets of housing here in Charlotte, NC. Lot’s of new faces with the majority of the old either struggling to change with the markets and/or the established extremely cautious with new direction. My Realtor contacts state that the amount of retail home buyers appear to be the same as last; however, this year (as a generalization) they appear to be somewhat anxious about losing a home (they want) versus outright fear of paying to much (from last year). From all of my scientific & non-scientific measurements, I’d say that the entry level home buyer demand will be slightly greater than it was last year for the spring market.
This is a good sign!!!.
Note: Don’t take this as a signal to be uncooperative in a contract negotiation. Make a reasonable deal, move the inventory, and move onto the next opportunity. In case people haven’t figured it out yet…. The key to wholesaling and/or rehabbing homes to sell for a profit is to buy right to help insure profits, manage upfits efficiently, and sell it as soon as possible. Inventory turn. Don’t hold out for an extra $5k profit on a home, move it out, make your $5, 10, 20, 50k and move onto the next -make time to repeat.
This also helps keep one flexible to market valuation changes. I can’t tell you how many times I’ve seen acquaintances, clients, & friends see profits of $20 & 79k evaporate into a break even or loss situation due to there denial (or ignorance) to market changes and greed.
We need to pay attention to the (supposed) expiration date of the Home Buyers Tax Credit of April 30, 2010. If you’ve got home buyer product, get it done now and on the market in the next couple of weeks. Actually walk (YES I SAID WALK) through 6-8 competing homes and price yours correctly. One should act as if there are only 2 buyers for your target neighborhood in the next 3 months that you want one to buy your home. What does that mean???? That means you need to price it right based on your homes (pros & cons) versus your competitions. Get advice from realtors, experienced investors, and even the neighbors – Listen to that advice.
Now….. I actually believe our government will have no choice but to extend the home buyer tax credit (at least through the remainder of the year); however, I would not advise you to build your business plan off of a shoulda, woulda, coulda….. That means be cautious and get your product sold.
Let me fill you in with my thoughts if the Home Buyer Tax Credit it doesn’t get extended. First off -can we agree that very slowly over the last 2-3 months that we’ve seen home lending requirements tighten (such as FICO minimums, seller credits, down payment requirements, etc.) with a continuation over the next 1-2 months? Think that will continue? You bet. If the tax credit isn’t extended, I would not be surprised to see an additional 5-15% downward correction in our home values through the Fall/Winter 2010 season. I think our market will see a break-even to 5% downward pricing pressure already (not including my loss of tax credit theory) for 2010 and will obviously vary depending on neighborhood. What does that mean? You have to be conservative in your fix up costs, down time (rehab time), days on market (time to get it sold), cost of funds, and end selling price to derive a proper conservative purchase price. If a mistake is made -then admit it. Price it right and move on.
I certainly cannot predict what our local and national real estate markets will be like in 3, 5, 7, 15+ years. What I can do is look at historical patterns and make predictions. We are in a classic 20 year trending cycle. Here’s what I think. Our markets will undulate up & down over the next 3 years. I think we can see market variations of up to 15% (as a generalization) in valuation during this time with the greatest of odds that it will be to the downside. I am now feeling excited that the opportunity to enter the markets for both buy&hold and short term merchandising is now higher than it has been for the past 3 years. One needs to focus on what makes a home (or multifamily) a strong performing rental and/or high demand product for a home buyer. The days of picking just any home are over -or lets just say will cause a drag on your return. Am I putting my money were my mouth is? Yes! Instead of the selling of reo’s from my lending operation, I’m now more inclined to inventory them in the rental portfolio and we are investing in new projects going forward. If you’ve read my Outlook on 2010 (or any other article), you’ll see this is nothing new.
I would also encourage you to consider a “reverse-growth” mode. If your not able and/or willing to grow via acquisition of new rentals or merchandising product, consider focus on paying down your “Good Debt”. Yes, I actually said that. Remember wealth is created via our net worth and what we do with our cash flow. Focus on non-fixed rate bank money first. Your return will be slightly higher than the actual face value interest rate due to the compounding. Tightening the belt today will make tomorrow more exciting. Perhaps this will be the focus of a future article.
I’d like your feedback!!! What are your thoughts? The more healthy dialogue we have…, the more we will learn.
