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I suggest you read the 2006 and 2007Commonwealth Newsletters. The things that Jack was talking about just before the last economic and housing collapse in 2007 are happening again right now. I really thought it would happen later in the year but it is happening now. So, I ancitipate a housing craseh this year in the USA.
What does that mean for you?
If you have any properties which are highly leveraged, get rid of them. They could soon be upside down in value with a payment that is too high to rent it out for positive cash flow.
Get rid of properties that have a high payment and low cash flow but some equity. Use the proceeds to pay off other properties to get them free and clear.
Get liquid. Sell underperformers. Do some wholesale flips to generate cash cash cash which you can use for great deals after the crash.
When buying, be very careful. Never buy with bank financing, never take on any personal liability. Remember, you do not have to buy! Use master leases and/or options to control cash flow and upside equity. Learn about both master leases and options.
And my personal recommendation is to diversify some of your investments outside of the USA.
The last time there was a housing crash, many investors just sat on the sidelines for several years. Their money was making no profits.. actually losing money because savings accounts in the USA do not keep up with inflation. But if you diversify some of your investments offshore, you can continue to grow your money.
I think this housing crash will be much worse than the last one. Get ready for lots of opportunity and a fun ride!
I will have more details in an article soon. But I wanted you to start reading the 2006 and 2007 Commonwealth Newsletters now. History really does repeat itself. Housing crashes are usually on a 7 year cycle. It’s time.
Jackie – What about Assisted Living Facilities? Do you still think those might be a good buy now? I am finding it is really hard to get a bank to finance an existing one, so you pretty much have to do cash or owner financing.
You can have a bank finance one if you buy it as a SFH and turn it into an ALF. But an existing one – not so much.
SBA loans are a possibility. But they have a lot of requirements.
I’m thinking ALF’s might avoid the housing crash somewhat, but would be interested in your thoughts.
Seems like everything is crazy right now – just like 2006.
I think Assisted Living Facilities are a great investment but you have to buy right… just like anything. The cash flow will be great. But if you needed to sell quickly for some reason (get liquid) you have to make sure you are buying below market to give some wiggle room.
I would not buy an assited living facility unless I could buy with seller financing. I would not use any kind of bank financing. If the seller needs cash, the note, or part of the note, could be sold to generate cash.
Also look in to equity participation financing/private lenders vs. traditional bank financing.
Of course, if you are working with a traditional real estate agent, they will not understand any of this.
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Jackie is SO right about avoiding traditional bank financing for commercial projects. Let me put a little flesh on the bones of her sound advice to make it a bit more memorable.About three years ago I got to know a restaurant and entertainment facility developer in the Arlington, Texas area. He had been in that business for a very long time and had a sterling reputation. He owned an entire block close to the University of Texas at Arlington, and had part of it developed and leased out, with interested parties from chain restaurants just waiting for him to obtain financing to build for them. You?d think his longtime bank connection would be tickled pink to get a piece of his fresh business. That would have been true, up until the economy tanked and the banking regulators forced a total turnover in the employees, and demanded the bank increase its reserves steeply.
That meant the Dallas-area bank branch refused to roll over his existing loans on which he had never missed a payment, and the bank alleged that he was in default. They tried everything they could think of to force a foreclosure. He ran up $100,000 in legal bills spread over the four times he won in court over that bank. He told me he never ever wanted to rely on a bank loan again, while he was looking for private funding to remove that bank from his life.
What he could not have known was that there were Wall Street vulture funds that sprang up to take advantage of the commercial foreclosures they knew were coming when the economy tanked. The foreclosing banks would cover their apparent losses with a backdoor insurance payoff from the Fed, and those new investment funds would take the foreclosed properties off the banks? hands at a bargain price, and make money hand over foot with them.
There are lots more ways to force a foreclosure than mere missed payments. Most commercial loan contracts have quite a list of ?loan covenants? — which are conditions that must be maintained during the life of the loan. I listened to the managing partner of a private lending firm explain that many commercial borrowers are in technical default from day one, and essentially continue their business existence at the ?pleasure? of the traditional bank lender. Which means that every time the economy takes a dive, and the banking regulators point a gun at the local banks? heads to increase their cash reserves, the pressure will always be put on the commercial borrowers to either find replacement funding to buy out the bank?s position, or suffer a foreclosure disaster.
That is NOT a trap anyone teaches you in high school government class or in graduate B school — which wants a continued flow of government-blessed hiring organizations to visit their job placement facilities.
So Jackie?s advice is very sound. You just didn?t know how incredibly sound it really is.
–Dee
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