5 Ways to Start Getting Ready for the Real Estate Recovery

Posted by Robb Terranova under Buying Real Estate, Real Estate Investing | Be the First to Comment

The real estate recovery is inevitable. It's not too soon to start getting prepared.

Remember how easy it was for the fabled townsfolk to dance around the prone and hulking corpse of the giant who once terrorized them?  Before the giant was killed by the courageous Jack, however, dancing did not come easy (maybe it was the wobbly knees?). 

This pre-kill point is where we are in the real estate cycle, the industry so saturated with hopelessness that dancing days are all but inconceivable.  But the giant will fall, and when he does, you need to be ready.

OK, the US economic framework has been shaken to its core.  OK, the real estate industry still feels like the lower 9th ward in New Orleans post-Katrina.  But will you be ready when, after dragging the bottom for a longer than tolerable period of time, the real estate market actually ticks up? 

Real estate is cyclical, real estate is cyclical, real estate is cyclical…  Keep repeating this mantra because there is life after the slump, meltdown, crash, insert your grim noun here.  This crazy idea has been gaining momentum in the real estate industry lately.  More and more it is displacing the suffocating gloom that once occupied the same space. 

In its previous incarnation, “extrapolation bias” which is the tendency to think things will continue as they have been, caused the bubble to catch so many investors out on a limb.  The newly entrenched version caused by the slump, that real estate will continue to decline, has actually begun to reverse.

Recently, we have started to see brief glimpses that real estate will soon be moving out of survival mode into recovery, and it gets you thinking, or more accurately “feeling.”  If this cataclysm is actually going to end, it’s time to start planning.  What a delicious task to finally undertake as visions of appreciation and equity once again push themselves into our consciousness. 

Five things to do immediately:

1. Finalize the optimization of poor performing assets.  This means renting houses that won’t sell at any price in this market worth taking, so they can at least cover their financing until the market improves.

 

2. Begin researching the new conventional financing guidelines and the alternative financing climate:
   • While sub-prime loans from conventional lenders will be virtually non-existent, sellers may be disposed to consider owner financing, something you can use yourself in a tight sub-prime market to move your resale inventory early in the recovery.

    

   • Hard money lenders have been hurt severely by defaults on properties where equity dried up with falling prices, and are now saddled with houses they can’t resell.  But in order to stay in business they still need to lend money.  As home prices rise and they see a steady gain in value, they may soften their terms.

    

   • Accordingly, if you have assets you’re trying to sell to capitalize other projects, you will start to see more favorable conditions – you won’t have to spend quite so much fixing to perfection, you might actually be able to FSBO, and days on market won’t drag into the next millennium.

    

3. Continue to watch for buzz about the bottom, because that’s what consumers are listening to: 
   • As we know, the media are always at least one tick behind real estate current conditions and tend to play it safe.  Remember, we saw this on the down slope when most denied the crash was impending. 

    

   • More and more articles are emerging about the recovery, which likely indicates the dawn.  We have started seeing headlines about the bottom from credentialed pundits, and statistics that support the “beginning of the end,” so the starting gun is getting ready to go off.
4. Be on the lookout for the first markets to firm up.  Believe it or not, these are probably extreme collapse areas like Florida, California and Nevada because the markets have overcorrected there.  If you aren’t in a position to take advantage of opportunities in these areas, remember that soon other markets will follow and the best profits will be for those who take action at the beginning when prices are still at their lowest.

 

5. Pre-visualize the recovery and develop a concrete investment plan using normal (not abnormally unfavorable) market conditions.  What types of property will you be looking for?  Map out in detail what purchase price, what condition, what location, and what end result (sell, hold) you will execute.

It’s not that crazy to start thinking aftermath.  In fact, it’s critical if you want to be on top of things when the time comes, and it inevitably will.