In this current environment, we have banks that are struggling to stay afloat and homes being foreclosed on. For some savvy investors, this could signal a strong buy sign. As they often say in business, "Bulls make money, bears make money, and pigs get slaughtered".
However, this environment will be different than previous ones experienced by veteran investors, especially those who gained their experience in more recent times. Traditionally, real estate is bought with debt, but with this credit crunch, this kind of leverage is proving difficult to get. There are many stories of creditor with good credit (above 650) now being denied the loans. For people seeking to buy their first homes or condos especially in the lower tier price ranges, this is proving to be mission impossible.
For example, I have had a few condo listings that are in large complexes with a strong percentage of rental owners, and the condos cannot find a willing buyer. The thing is that the condos have a strong rental history and are cash flowing, but investors are finding it difficult to get loans to close on condos.
At this point, investors have to come up with cash for the entire deal. 100% cash deals take some of the advantages that real estate provides in terms of effectively making money on other peoples cash. However, for those investors who have serious cash reserves this could create interesting buying opportunities since fewer people can close deals. Since many sellers will be facing tighter pools, they may have to take steeper discounts to sell properties. Prices paid only a few years ago may not truly reflect market values in these austere times.
This may create situations where other investors may have to deal with the risk and issues inherent in partnerships or larger conglomeration of individuals to make deals happen. It is going to be curious how this credit crisis will play itself out.
For some investors though, this could mean working to improve your credit scores while you wait out this crisis. Paying off debts, avoiding unnecessary expenditures, and improving how much money you could put down will all probably be words that many potential investors will hear over the near future.
Often as property managers, we have experienced investors who believe that the key to profitability arises when we take over the project. Unfortunately, some investors had already sealed their fate because they were over leveraged and did not have the finances to deal with issues that arise with getting property (make ready, deferred maintenance, etc). Maybe for investors buying in this period, they will have better grasp on what kind of deals they can truly take on. Sometimes in the heat of the frying pan (that we all are facing), everyone can melt the fat off their bacons and come out a little healthier in the long run.