June 2017, Investors: Where to Focus

This is one man’s opinion, mine, on the current real estate market conditions. You can be successful in any of the categories if you are good. However, each market better supports certain efforts.

1. Choose the Right Market and Location

Always choose the market you know.

2. Wholesaling

Wholesalers are sources of deals right now, which is rare. I believe wholesalers are doing well right now.

3. Real Estate Agent

With record low inventory, every house for sale creates a buyer frenzy. Buyers are 5:1 or 9:1 depending on who you talk to. Real estate agents need sellers (and we know it).

4. Retailing

This is my pick!

Retailers create value and thereby create inventory, which is currently scarce. If you can and are willing to work, contract, or hire contractors, your efforts will be rewarded by desperate buyers!

5. Landlording

Managers are always in high demand. Currently, investors who are enjoying great rental rates and a good economy are looking to off-load their headaches and hire management. Managing is a good choice.

6. Lease-Option / Rent-to-Own

Lease-options are seller-driven, typically when sellers have difficulty finding buyers. These are currently rare because buyers are so abundant.

7. Be the Bank / Invest

As an investor, I do not like to do this, but I have to pick this as currently the least desirable category. At no time in recent history has money and capital been so under-appreciated. Interest rates held at record lows by government policy and foreign investors desperately seeking returns have driven prices sky-high. Apartment buildings are selling at sub-6% capitalization rates in some places and home prices are outpacing appraisers’ willingness to comply. I personally am keeping my money on the sideline except to quickly bring inventory to market and sell it.

Long-term fixed-rate loans with low rates are hard to bet against, but before you lock yourself in, do a quick calculation on the monthly payment of a potential buyer in 5 years who will likely be buying from you with a normal interest rate on his loan. Your rate is low, your payment is low, but the prices reflect that.

The very last thing I would do is pay current market prices with a variable rate loan. Current conditions could not be worse for this type of investment. I personally have a variable rate loan on my apartment building and I am seeking to lock in the rate for 5 years because that is the longest typically available for a commercial loan. Fortunately I paid the 2013 price so I am way up. I am not selling, but I would not pay today’s price.

These are all my opinions. Please comment. All discussion is welcome.

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