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Great article that Bill Cook just posted on facebook:
Farmers know to plant in the spring, watch things grow in the summer, and to harvest in the fall.
Folks, 2013 and 2014 was the spring. 2015 through 2017 was the summer. And 2018 is the fall. Are you harvesting, or are you still planting like it was the spring?
In 2017, I traveled the country teaching creative deal structuring and taking folks door knocking. The real estate market was on FIRE!!!! Houses sold the day they went on the market for more than the asking price.
In 2018, I traveled the country doing the same thing, just a lot more of it. The real estate market has leveled off. Houses are sitting. They are selling for BELOW the asking price. And get this, since September, I’ve been seeing “Price Reduced” signs on realtors’ for sale signs. I’ve not seen “Reduced” signs since 2013!!!
The market is changing. Are you still structuring like you did in 2013 through 2017? Kim and I saw this same thing happen in 2005 and 2006. The market peaked in 2006.
I believe we’ll look back and a year or two from now and realize the market peaked in the summer of 2018.
Can I be wrong. I’m wrong much more often than I’m right. Still, Kim and I have been harvesting since 2015. We will have completed harvesting within the next month.
We are ready for the down turn. The only debt we carry is to our private money lenders. We’ve not paid them off because they insist we continue making them payments. They do not want to be paid off. By the way, the interest rate on our private money loans is between 4 and 5 percent fixed. The reason they don’t want to be paid off is if we do, they’ll be forced to put their money in a CD making 2% interest.
I’m now witnessing a lot of houses sitting on the market for months. Just like in 2006, sellers are not reducing their asking price fast enough. They are hoping for one more surge.
Will there be one more surge in real estate values? I have no clue. People a lot smarter then me (that’s most everybody) think so. Problem is, I’m out there door knocking. I’m face to face with sellers. This year I’ve door knocked in Georgia, Florida, Alabama, Texas, Arizona, California, Nevada, Ohio, Wisconsin, and the Carolinas. That’s 11 states. I’m seeing the same trend coast to coast.
Are you getting ready for the down turn? Are you harvesting. Are you adapting your creative deal structuring?
What structures will work GREAT in a down turn? Owner financing. Master Leasing (David Tinley is the best master leasing teaching on the planet). Options.
Do not be that guy who gets caught without a chair when the music stops!
Bonus: I just read John Maulding’s latest newsletter. He is mirroring what I’m saying. REMEMBER: neither of us have a crystal ball, nor a functioning 8-Ball for that matter.
Here’s a link to his column:
http://www.mauldineconomics.com/front…/economic-brake-lights
I’m not a wholesaler, but I think the general advice would be to assure that your deals are not on the thin side. And probably make sure that you are in touch with the needs and wants of your buyer’s list. You’d want meat-on-the-bones deals that you have demand for. You don’t want thin deals because of the possibility that the market value could drop and eat away your margin.
But someone with wholesaling experience might be a better source of advice, so hopefully one of them will come along and fill us in.
Jeremy
When the music stopped that last time, I probably did more wholesaling than I did when the music was playing loudly.. So, don’t worry about being put out of business when real estate markets change.
This is how I adjusted during the last real estate crash:
1. I’d always make two offers to buy wholesale properties. One was a low ball all cash offer. The other offer was about 10% more with no or low down and really low or no payments until the house was sold. Why did I do this? So that I could sell the houses with seller financing to my buyers. Hard money dries up when there is a real estate crash so it is harder for rehabbers to get cash. If you can offer seller financing, you will have buyers lined up.
You’ll still get a nice down payment, a monthly cash flow, plus a big payday when you are cashed out.
Here’s a write up about a deal my daughter did to explain how it could work
2. Speaking of hard money lenders. When the market changes, they will get a LOT of houses back. You need to start establishing relationships with them now so you can help them liquidate the inventory they get back. One hard money lender in Dallas got back more than 200 houses in 2008 and even more in 2009. I was the go to person to help move him out! Build relationships with hard money lenders and private lenders! Because they offered seller financing it was an easy sell for me! ca ching!
3. If this new market change is like the last one, you will see a lot of homes being foreclosed on. It’s a good time to buy subject to the mortgage IF there is a lot of equity and it is a fixed low interest rate with no balloon. You may want to keep some of these as your rentals. But you can also get a contract on them then sell your contact to other landlords. I was doing 5 deals a month in 2008 and 2009. I really did not want that many houses all at once so I passed on some deals to others for a $5,000 assignment fee.
Keep in mind that many newbie investors have ONE mode of operation. If they can’t do what they have always done, like buy, fix, sell, then they drop out of the market until conditions change. So, you’ll have less competition. Less buyers too. But the buyers you will have are the real players in the market. Now is a good time to determine who those folks are. You can meet them at foreclosure auctions and at REI meetings.
Hope this helps
Jackie
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