My advice here, really, is to wait for the downturn. When sellers are forced to sell for asking or below and it takes closer to 30-60 days for those offers to come through, that is the first phase in the physical market. You can already see this happening in areas such as California, New York, Canada, Australia, and other parts of Europe and Asia. In this country, we are already seeing a month to month and year to year drop in home sales of every kind. Once all the inventory hoarded by big-time investors (i.e. investment groups, hedge funds) begins to unload on the market, that would be phase 2. After this occurs, the prices start to drop dramatically. It is only a matter of time before things trickle over to lower-priced cities. Phase 1 has just begun in the Dallas, Texas area. If you do decide to invest in this market now, here are a few rules of thumb to go by:
Throw your normal understandings out the window
Smart investments are no longer the 3/2/2 brick homes anymore (3 bedroom, 2 bath, 2 car garage). You’ve probably been priced out of those options, depending on your area. As I’ve stated in another article, people are just desperate to get a roof over their heads. The lack of affordable housing is scary and insane. Now, it’s more feasible and understandable to invest in those 2/2 or 2/1 options with no garages. Even investing in a plot of small land and plopping a mobile home or prefab structure on it will fair you better. If you intend to make it rental property, be prepared for those tenants to lose their jobs in the near future. If you are reading through this article, then you most likely understand the true probability of things to come down the pipeline.
Be ready to walk away
If you cannot pay for that mortgage, you can certainly list it for sale. Be prepared to walk away entirely, though. If things are that bad, it means thousands, possibly millions, are doing the exact same thing (just like in 2008). If you wait too long, there may not be any buyers left (or the buyers that are still around will completely low-ball you because they can at that point).
Look for unconventional lending
I am not saying to overextend yourself here. Once the market begins to peak, lenders become desperate. This is when they begin changing their terms and loosening policies. They accept lower credit scores, higher debt to income ratios, and expect less upfront, all to keep their businesses afloat and their employees paid. Banks used to require 20% down for Conventional loans. Now they’ve lowered that standard to 3% down. I am receiving offers from private lenders for all cash loans with down-payment, points, and closing costs covered (if they consider the investment to be a good one that is). The people with the money are starting to get antsy in their pants-ys. This can be good for you if you play the game right and go into it with the right frame-of-mind. Know that you may lose your ass. That’s why it is SO important to buy extremely low. I say the less you invest up front, the easier it is to abandon if you’re forced to. If you can pay cash, do it. Just remember to buy well below market value. Those buying at the top of the market WILL be upside down in a short period of time. There are literally still people paying off their mortgages on houses that lost most of their value back in 2008! Most will NEVER be able to recoup their losses unless they empty their retirements or win the lottery.
Protect yourself
Never put all your eggs in one basket, meaning you must DIVERSIFY your investments. If you end up having to file for bankruptcy, you must have some sort of net to fall back on. Stocks and bonds are not a safety net. Research other tangible assets that will hedge against an all-out collapse. If you think it will never happen, you will be the one left with NOTHING when it does. History has always repeated itself.
***Full disclosure here. I believe that the housing bubble is a controlled phenomenon to price out most homebuyers and create a nation of renters. You will see this become more and more prevalent over time.
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