This early spring has proven to be moving is a very positive direction as far as housing sales are concerned right here in southeast Michigan. Recent statistics show a double digit increase somewhere close to 11% more sales this spring over 2010. What’s the reason for this? There are literally thousands of factors but for us real estate investors there are 3 major reasons that we need to pay attention to.
1. A lot of the garbage inventory is down-what’s garbage inventory? Well going back about 5 to 7 years when things were much rosier in the Michigan market and you could get a mortgage in you could breathe, it created buyers who were terribly unqualified. The majority of those buyers purchased using ferociously risky non-conforming mortgages. You remember the commercials right?
NO job, NO money, Bad credit-NO Problem. Ha! Big Problem
Americans, yes some of our neighbors and maybe even you were buying houses on negative amortization mortgages. Do you understand what that means? It means that every month you’re actually paying less that what the mortgage calls for to make a dent in the principal and it actually goes up! No not the value of the home, but the balance of the mortgage. This is what I call the garbage inventory that has been pretty much weeded out over the last 2 years. These people have already given the house back to the bank and it’s been resold to a new buyer.
2. The government is making easier now than ever for “regular” homeowners to but distressed properties even if they were once un mortgageable. Why would a house not be mortgageable? A few major reasons are bad mechanicals such as furnace, plumbing, or electric. Another reason is the house wasn’t up to FHA financing code guidelines. Items like missing handrails, broken steps or windows, and maybe peeling paint, yes they’ll not let you buy a house sometimes if the paint is peeling if you’re using an FHA mortgage. Please show me a foreclosure that’s been though a Michigan winter or two vacant that doesn’t have some peeling paint.
What the government along with Fannie Mae and Freddie Mac has done is re-instituted or really just re-marketed the 203k. Basically what happens is you as a homeowner can buy a distressed property and do fix ups before you move in and possibly get a mortgage for your purchase price plus all of your approved repairs. This has allowed “regular” homeowners to come in and buy these properties that they Werner able to previously. Here’s the math; there’s a lot more “regular” homeowners out there than investors, therefore more properties are coming off the market thanks to the 203k
I know what you’re wondering-when is the 203k going to be available to house flippers like us right? Well it’s close to being approved by FHA right now-stay tuned!
3. There are more crazy people like us buying up these discounted properties with one of two hopes;
a) To buy, fix, and flip there way to retirement
b) To move a friend or family member in and wait for some major appreciation
Let’s dive into a. As you well know I’m a full-time real estate investor who loves to flip houses. Sometimes it’s without a huge rehab sometimes it’s with one. It kind of depends on a few factors in my personal business. For the sake of argument let’s talk about the investor’s who’ve jumped in because of all the foreclosure hype. When you talk to people in the real estate who are full time professionals and truly doing business whether it’s a real estate agent, mortgage broker, or professional investor they’re all saying the same thing-IF you do the remodel beautifully and price it right it’s selling immediately. Here’s a link to a current listing that I was in control of the remodel on http://bit.ly/Dylans-Remodel
If you checked it out you’ll notice that in a good bread and butter neighborhood we used granite in the kitchen and bath, upgraded cherry cabinets, & finished the basement. All that for under 99k. Imagine what you have to do to be successful on a 200k sale price property. Successful investors must go the extra mile and beyond to move remodeled properties quickly in this market. One false move, that means being a cheapo, and you may have yourself a very expensive rental.
Let’s move on to b. A good percentage of the houses I wholesale end up going to parents, or an uncle who wants to offset the price they paid for their homes, typically double, with another one in the neighborhood. Then they either rent it or owner finance it to a friend or family member. Most times the buyer believes that if they can buy a house in there own neighborhood for such a cheap price, it has to go up. Well if I could tell the future I’d have bought Apple stock in ’84 and Google in ’04. But if I’d have to venture a guess I’d say for the casual investor and full-timer-GO ALL IN.
This is the biggest opportunity in Michigan real estate since the building boom of the late 90’s. Can you get in trouble, yes of course. I’m not saying close your eyes and throw a dart at a board. What I am saying is do your homework, talk to real professionals in the business, get educated at a real estate investment seminars, and make a good business decision.
Here’s a $10,000 bootcamp summed up in 3 statements;
1. Buy right (as low as possible, you can’t cure a bad purchase price)
2. Fix it fast (no 6 month rehabs, 6 weeks max)
3. Good properties (3 beds, basement, garage, square footage, multiple bathrooms-sure smarty there’s always exceptions)
BONUS #4 Make sure you’re supposed guru or coach has actually done what they’re teaching you SUCCESSFULLY, & is doing what they’re teaching you right now SUCCESSFULLY (the internet spawns experts literally every mili-second)
See you in the trenches,