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Read this week's AJC article |
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INVESTORS ARE BUYING REAL ESTATE DEALS WHILE MARKET STRUGGLES
Whether you look at the housing market or the job market, whether you
are trying to fill your gas tank or fill your shopping cart at the
grocery, it's painfully clear that things are costing more, and a lot
of people are hurting right now.
Meanwhile, the housing sector languishes in a sort of realty limbo,
with prices in Georgia remaining flat as a show of strength. Inventory,
both new and resale, is uncomfortably high. Buying activity is down
substantially or dramatically, depending on whose numbers you believe.
During times like these, there is a natural tendency for all of us to
pull back a little bit and say "maybe I should ride things out" and
wait for better economic times. However, I believe that is exactly the
wrong course of action for smart real estate investors.
This week, I am attending an investment conference in Las Vegas, and I
am talking with landlords and investors from all over the United
States. Many are from markets in worse condition than the Atlanta metro
area. They talk of neighborhoods with a thirty-five percent foreclosure
rate and every third house sitting empty.
Yet, this same group sees opportunity in the air.
In contrast to retail buyers whose motivation to purchase is driven by
the tone of the evening news, the investors at this conference believe
that well-selected residential real estate will always be a good
investment.
Here is their line of reasoning:
* Yes, there is a general slowdown in the economy right now.
No question that food and gas prices are much higher. And no argument
with the fact that lending markets have made it much tougher for first
time buyers to buy a house.
But given that situation, our economy seems to be doing remarkably
well. We don't have soup kitchens yet, and no one is jumping out of
windows on Wall Street. Most folks who want one are able to find a job.
And according to the statistics, home resale prices, both nationally
and locally, have largely held their value, despite some notable areas
of value volatility (such as here in Las Vegas).
These real estate investors are in for the long haul. They want to buy
quality homes in family neighborhoods, and find tenants who may have
recently been shut out of the market for buying a home.
They are looking for sellers who have decided that selling their home
now is more important than getting a top dollar price. They are looking
for sellers who can be flexible on their price or their terms. And in
today's real estate market, these investors are finding willing sellers.
* No, they believe this slowdown won't last forever.
These capitalists believe that the current economic environment is only
temporary. And they say they've been through all this before.
The Fed recently cut the Federal Funds Rate again, this time a quarter
of a percentage point to 2%, acknowledging the economy is weak, the
housing market is still in the doldrums and credit markets remain
unsettled.
This rate cut signaled the Fed's willingness to intervene as needed to prevent a recession and support the economy.
And the economy is bound to improve, especially for those of us who
live in the Sunbelt. People are moving here from all over the nation
because Atlanta is creating new jobs, and that drives the housing
market.
People still have to have a place to live. There has been no fundamental change in America.
* By using creative financing strategies, these investors believe they
can help sellers sell and help renters find clean, decent, affordable
housing.
Sellers who are willing to accept monthly payments in place of a lump
sum of cash are able to sell quickly to investors. And in some cases,
wrap-around mortgages can solve the problem of paying off existing
loans.
And there's more good news for investors. Lender inventory of
foreclosed houses is higher than at any time since the S&L crisis;
more and more lenders are accepting discounted payoffs as a way of
preventing more foreclosures, and long term interest rates remain at
thirty year lows.
At the same time, the rental market is stronger than it has been in
years. That's because it's hard for first time buyers to get a loan.
People with sub-680 credit scores, limited savings and other financial
challenges are having a hard time getting qualified, so they may have
to rent for a while.
* All things, including real estate investing, are best in moderation.
Today's smart real estate investor sees the current real estate market
as an opportunity to purchase a few good deals. Their goal is to
purchase one house at a time, then get that house rented with a
positive monthly income.
By taking things one step at a time, the investor hopes to avoid getting buried in monthly payments he can't afford.
In a few years, I believe we will look back at this current market and
recognize that prices were low and interest rates affordable. Some of
us will then regret our decision to wait to buy a home. And some of us
will be glad that we bought when we did.
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