Mortgage Crunch Offers Solid Investment Opportunity
Recently First Horizon Financial announced that a great deal of their earnings drop was based on the increasing number of foreclosures on their ledger. And First Horizon is not alone. Institutions all over the country are seeing their profits diminish as mortgage holders are unable to keep up with the mounting costs associated with their homes. Sound business ideas when the economy was strong is now proving to be a disaster with the economy and lower than expected wage increases have caused a fire sale in every housing market.
In the face of this doom and gloom there is a tremendous investment opportunity for those potential real estate investors. While this is not the market for the novice investor it is a prime opportunity for those who are comfortable with risk and have a long-term strategy for gaining a sizeable return on their investment. Given the unpopularity of the real estate market, most investors are finding the landscape unstable and undesirable. In fact, many are pulling their money out of real estate and going straight to a cash basis or mutual fund in order to avert some of the volatility in the market.
In markets like Houston and Atlanta, where corporate growth is continuing to boom the reality is that people will not want to rent forever. The need for real estate will continue. The question will be with the Fed lowering interest rates and banks tightening their loan policies will buyers be able to 1-find a loan and 2-find a home. Given that credit scores will be a major issue over the next eighteen months, there will be a modicum of mortgages to be had. However, with any market, the ebb and flow will eventually pan out and banks will loosen their grip on mortgage requirements and buyers will be able to secure financing. This is where the investment opportunity comes in for real estate investors.
With homes on the market for two-thirds their prices of 2006, the potential for selling a home in late 2008 to early 2009 is almost guaranteed. The difference in old real estate speculating is in the time between buying and selling. Most investors will choose to hold the homes and keep them on the market. The smarter move will be in doing 1-2 year leases. Most sellers will find it difficult to find new homes or apartments to live in. Why not buy the home and have the same family immediately lease the home at a note smaller than the mortgage you have secured on the home purchase thereby maintaining a similitude of quality and living in the community and the home. Most persons will not favor destroying a home they used to own. This will quail the renting fiascos many have experienced in real estate leasing in the past. Further it will enable you to maintain a solid investment.
Being a risk-taker with moderate fear, the investment potential is there for buyers who can wait 2-3 years to get a return on their investment. With it being a buyers market with real estate prices dropping like cows out of the sky, the potential is unlimited if patience and out-of-the-box thinking ruling the day. Business as usual has changed as much as the tech collapse in 2000. A new normal and way of investing has been created and investors have to think in new ways to return higher than expected returns on their investments.
With the stock market and other investment streams all falling under the same crunch, a long-term perspective is needed in addition to more creative investment ideas to sustain growth in one's investment prospectus. Do yourself a favor and contemplate becoming a long-term real estate investor. By 2009 you will be glad you did.
Published by mike white
Any man with any worth has paid the price for the wisdom that guides him, the strength that sustains him and the hope that propels him. That is my bio...my mantra.... View profile
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12 Comments
Post a CommentThis point of view is valid as are those in opposition. The fact is none of us has a crystal ball and no one will be able to "know" when the real estate market has bottomed out. There ARE indicators, however, such as the average days on the market data that any real estate agent can provide. When the market starts moving again it will be pretty easy to tell as agents will be busier and signs that you saw sitting on listed residences will move at a faster rate. I walk my neighborhood every morning for exercise and have seen the same homes on the market for the last 3 months (California) and it's apparent that nothing is moving as the inventory of homes for sale swells and buyers are sit on the sidelines waiting for that "bottom" to arrive. For investors, the correct perspective is to look at the investment irrespective of the direction pricing is moving and determine whether it makes sense on its own; that is, can you profitably rent or otherwise make best use of the property regar
Seems like Scott got the article....
mw
It sounds like most of the people commenting didn't get the point of the article. It might be a good idea. Buy at a significantly reduced price a house that's going to foreclose and rent to the people who are getting foreclosed. It ends up being irrelevant if the market's going up or down.
I don't mean to bust your bubble but then again maybe I do. The real estate market nationally is going in the dumper in terms of value simply because the base from which you think you're going to make money is already grossly inflated. Price to real value is actually negative. Waiting for appreciation with no clear time in mind is like fishing cause you have nothing better to do. While your waiting for property to appreciate your cost of capital is eroding your equity. Property will correct, go down, simply because comparative values will also correct and secondly if you're purchasing with a mortgage the loan to value ratios are lower meaning you get less for your money. All of this stuff drives down the ask price of property. This is not the time to invest blindly because you think the market is attractive. You better be very certain because it's your money on the line. If you can afford to take the gamble and really don't care what happens then put your money where it will do the mo
HalloweenIsComing: Keep in mind that something you gain right now can eventually turn into a loss, and another person's loss can also be your loss. I hope it doesn't happen to you, but it can happen to anyone. Not everyone who loses a home made bad decisions that caused their demise. I feel bad for anyone who loses their home.
Interesting and well written article.I especially like your idea of buying a house and keeping the former owners as renters.
Im actually buying this month. The market is hot for me right now. Im buying my first home, and I can actually AFFORD it! Go figure. One mans loss is another mans gain. Thats how the world turns.
I'll keep my rented townhouse apartment and place my investments elsewhere. I had a home for sale that I can't sell, and I'll never do it again. Take a look at my article on Countrywide. http://www.associatedcontent.com/article/355510/help_from_countrywide_home_mortgage.html What I don't understand is this - why aren't the sellers buying? What happened to contingent offers? Are the majority of people trying to sell wanting to move into rentals? I would have purchased again, but no one even looked. It makes no sense to me.
Thanks for giving us investors a "ray of hope". We just need to ride it out and weather the storm...hold on for a few more months or even a year or two!
I disagree
http://www.associatedcontent.com/article/389455/is_this_a_good_time_for_house_flipping.html