I just finished purchasing my twelfth property in the last six months and here are some of the things I learned along the way:
- The price banks are willing to sell a property for usually have no relationship to market value
As we target properties sometimes agents have us look at a property before the bank has priced it. We take a look and come up with an offer price range. On many occasions the agent has let us know that the property will be listed at $190,000 and we would pay $100,000 for it. Not even close! Fortunately, it is a buyer’s market and there are hundreds of properties to pursue.
- City Permit Offices and Code Enforcement Officers have too much time on their hands
You would think that as the prices of Real Estate plummet, Cities would be friendlier with investors that are willing to help renovate properties in their City. The opposite seems to have happened; the inspectors have more time to make our life difficult. One city we deal with has Code Enforcement drive around and fines every property with dead grass. This adds up to thousands of dollars that banks pay at the close of escrow.
- Just because a contractor has no work, does not mean he is willing to work for less
As work dries up, you would think contractors would naturally lower their prices. It seems like many workers have decided to keep their prices the same and work less. I can’t see this trend lasting long-term but it does not seem logical to me. We just get lots of bids and negotiate.
- Vacant Properties get broken into; robbed and vandalized
I’ve always tried to believe in the greater good of people. But after owning a couple vacant properties this is harder. We buy in good blue collar neighborhoods and still get broken into. What is odd is most of the time they steal about $500 of stuff that is worth maybe $100 in the stolen market.
- Short-Term the Real Estate Market is only going to get worse
Obama decided that another moratorium would be a good idea. This is not good for the economy. This just delays the foreclosure process. Banks have little incentive to negotiate loans very aggressively. If they start doing it for some, other people will stop paying to get theirs renegotiated. The market needs to fix itself, banks need to be protected by the government with cash injections (so we don’t hide our money in the mattress) and things will get better with time.
- FHA Loans are the Norm
The Federal Housing Administration insures loans for banks. They allow the purchaser to put as little as 3% down. This loan is perfect for first-time home buyers and first-time buyers are the only buyers out there. If you rehab houses be prepared for FHA offers and lots of them if you price your property correctly.
- Real Estate prices are local
The Real Estate market has always been local. This is true whether the market is going up or down, some areas have dropped 70% last year while others have stayed flat. Migration is a big determining factor for pricing and people go where the jobs are.
- Escrow Agents work for who gives them the order
In every REO property we buy the banks have picked the escrow officer. This escrow office knows who will bring them more work and does things for the banks. Once you come to expect this, cover yourself and you should be okay.
- Banks seem to making the wrong decisions at the wrong time
Banks loosened their lending criteria as houses become less and less affordable. Now as home loans are starting to make sense again banks do not want to touch any mortgage. Banks need to start loaning money to qualified borrowers again before the market will stabilize. There will be a price point where banks will eventually start loaning money, but by then it will probably be too late.
- The world is not ending
Everyday the media reminds us that the world is ending. Homes are not selling, unemployment is sky rocketing, banks are failing and America is broken. America will rise out of this and in 10 years we will be another upswing and the speculators will completely have forget about 2008-2010.