And indeed, the early signs to the return of the investor are here. I've been working with investors who are looking for the low hanging fruit. The listings that are ripe to negotiate a good deal due to the large existing home inventory. The listed prices of these homes might have hit a low, but the sellers are still willing to negotiate from these prices even further. Sometimes as much as 20% from the low list price.
And it is at this level where investors are willing to come in and purchase. Remember, the real successful investors didn't buy in 2004 or 2005. The most savvy investor saw the profit potential as early as 2002. Many more climbed on the magic bus in 2003. But as 2004 started to see a historic spike in selling prices the best investors read the writing on the wall and the sell off began. The sell off continued into mid-2005 with good profits being made. But these were left-over sales of homes being purchased by late-comer (too late) investors and home-buyers who were concerned if they waited any longer home prices would be out of their price range. By the end of 2005 the housing market was on life support, the public just didn't know it yet.
Investors know real estate investing is a cyclic beast. The golden rule of the investor has a large "duh" factor pinned to it, but it holds true in its simplest form, "Buy low, sell high." The second rule married to this global profit-making truth is, "and don't be greedy." I can't tell you how many sellers I talk to who can't sell their homes today, but had offers in 2004 and 2005 of tens and even hundreds of thousands of dollars more than what they are currently listing the home for today. They past up huge profits with the expectation of making "just a little bit more" a year later. It was gold fever 21st century style.
So, you buyers out there are asking yourself, "Is it time to be in with the same lot of savvy investors of 2002/2003?" No one expects to see a return of gains seen in 2004/2005 over the next 2-3 years. So don't go into the real estate market with the expectation of flipping a home within months of purchasing. If you are looking for a safe bet investment over a 5 year or longer period or you are looking to purchase a retirement or vacation home then NOW is the time to purchase.
Investors are beginning to buzz out there and interest rates will not hold this low forever. Expect to see interest rates start to climb in 2008 and 2009. Some have even predicted double digit interest rates (remember the 1980's?). Yes, I know, just yesterday (9/19/2007) the prime was lowered a 1/2 point. Don't expect this to last too long. The U.S. dollar has taken a pounding partly due to these low rates. Although, the silver lining to this is foreign investors taking advantage of their high currency conversion rates and the low U.S. housing prices. Expect to see an increase of U.K. buyers of U.S. homes.
Belloise Realty was recently quoted in the Guardian, a prominent U.K. journal titled,
"The holiday homes you can afford." The journal stated:
One of the fastest-growing - but now fastest-falling - property markets in the world is Florida, writes Patrick Collinson. The sub-prime mortgage crisis gripping Wall Street and the City has its origins in states such as Florida, where easy lending spurred a house price and building boom that is moving sharply into reverse. But amid the misery of "foreclosures" are the first signs of investors buying at rock-bottom prices. We report from Clearwater Beach on the Gulf coast, where prices have tumbled as much as 40%.
The US mortgage crisis has resulted in a huge number of repossessions - and that's attracting the bargain-hunters.
Welcome to the world of foreclosure. One in every 80 homes in Florida is currently being repossessed by banks, as the sub-prime mortgage crisis rips through the Sunshine State.
While this means misery for evicted home owners, it spells opportunity to others - and many of the buyers are British, taking advantage of the best dollar exchange rates for a decade.
At Belloise Realty (belloiserealty.com), owner-manager Sal Belloise is a realtor (estate agent) in Clearwater Beach, which is regarded as one of the best beaches in the US. He says: "We've just put a property on the market that 22 months ago we got $1.8m (£889,000) for. Even though it's on the bay front, we'll probably end up with a sale price around $1.1m (£544,000).
"At the top end, the properties selling for $2.5m-$2.8m (£1.2m-£1.4m) are now going for $2.1m-$2.2m (£1m-£1.1m), while properties in the interior which had gone for $600,000-$900,000 (£296,000-£445,000) are going for $450,000 (£222,500)."House prices in holiday centres such as Miami, Orlando and Clearwater boomed in the years running up to 2005, stalled in 2006 and are now falling fast as the foreclosures work through.
"It was bizarre how it came to a halt at the end of 2005," says Mr Belloise. "For the past 23 months it has been like someone flicked a switch and said 'no more sales'." Initially Mr Belloise blamed it on overbuilding of condos (apartment blocks) and media reports (he cites CNN) predicting that the boom couldn't last. His guess was that cheap condos bought by investors - those priced around $300,000 (£148,000) - would be hit, but family homes would remain unaffected.
But the truth was that every mortgaged household was being affected by a sustained rise in interest rates, which saw the Federal Reserve raise borrowing costs 17 times in succession between 2004 and 2006. "People who had adjustable [variable] rate mortgages saw their payments doubled or even tripled," says Mr Belloise.
You can read the entire article at: http://money.guardian.co.uk/buyingpropertyabroad/story/0,,2164570,00.html
The article flags Florida as a great place to obtain a bargain to its U.K. readers. But this sentiment is not exclusively foreign. In a recent interview on CNN's Larry King Live, Donald Trump and other investment experts stated Florida and especially the west coast of Florida was the best buyer's market with the greatest profit potential in the U.S.
Okay, now that you have determined you want to be a passenger on that same magic bus the investors rode earlier, or at least, find a great deal on a second or retirement home, you ask yourself how do I find sellers with the greatest potential of negotiating a great deal?
I would be remiss here if I didn't recommend a Realtor with expert knowledge of the market and immediate area and with a history of strong negotiating skills in both upswing and downswing markets as your best bet.
There are several factors an experienced Realtor working on behalf of investors look at which dictates how low a seller might negotiate. These factors include:
- When did the seller purchase the home? If it was pre-2003 it's a good bet there is some room to negotiate. If the home was purchased during the heat of 2004 and 2005 the seller likely paid more than what the home can be sold for in today's market. But there is still a possibility to negotiate a good deal if the seller isn't delusional about the value of the house.
- What did the seller pay for the home. An obvious factor. A seller who states their purchase price is not a negotiating factor is fooling themselves. This might have been true in 2004 and 2005, but that boat has sailed. In today's market, investors are looking for the sellers with the most room to negotiate and they expect to negotiate without mercy. If you need to sell your home and you are still holding out hope to make a killer profit, wake up. If an investor approaches you, negotiate the best deal you can and sell. If you can wait out the market a couple of years then wait, but make sure you do the number crunching for the costs of mortgage payments, adjustable rate increases, taxes, insurance, maintenance, and stress before you say no to their best offer.
- What is the balance of the mortgage? This is as important as the price the seller paid for the house. This could work toward and against the investor. If a large down payment was made on the mortgage, or better yet, there is no mortgage the investor will see this as a bright beacon of light, a blue light special, and will see a good negotiation possibility. However, during the past few years low-interest equity lines were easy money for homeowners and too tempting for some to pass up. Therefore, even if a seller paid a small amount for the home there could be tens of thousands of dollars tied up in equity loans.
- Vacant homes. This sets off bells in the heads of investors. A vacant home could be an indicator that the seller could be paying two mortgages or renting elsewhere and still paying a mortgage. The seller could possibly be near the point to where he is willing to walk away from any profit or even sell for less than what they owe (sell short). At the very least, the seller is paying to maintain the home, taxes, and other costs which are piling up and reducing any realized profit.
Investors also gravitate toward surer bets such as waterfront homes over non-waterfront homes. Waterfront homes have a historical trend of greatest potential value increase during an upswing market and the least devaluation during a downswing.
These factors and numbers are just some of the science used in determining potential. There is also an art to negotiating a deal. A good Realtor is not afraid to make low offers with determination in this type of market. An experienced Realtor will educate over-priced sellers of their home's true market value in a declining market and provide them options. And for foreign buyers, an experienced Realtor will ensure all international requirements are met and works with proven lenders who have finance packages specifically optimized for foreign investors.
What? You're still here? Go! Get out there and buy!
Now legal mumbo-jumbo. All investments have risk and should be carefully investigated prior to acting upon. Although homes are generally considered a low risk long-term investment there are still risks involved as values do swing up and down. It is always advisable to consult with your financial planner prior to making any investment.
