It was not only the high cost of housing that created the real estate decline, but also an
oversupply of housing on the market. Consumers were not the only segment that saw an
opportunity to profit from the housing boom; investors and builders also saw the opportunity
to create large profits from the boom. The flood of real estate investors and builders into the
market created an oversupply of product. More homes were being built then could be consumed
by end users. Investors and builders helped drive prices up because they added to the demand
in the market to purchase housing, but again, this growth could not be sustained. Eventually the growth
would outpace itself. While home owners (end users) are emotionally and physically tied to their homes
because they need a place to live, investors are not. When the correction began and home prices started
to level off and decline and the oversupply of homes in various markets became evident, investors were
the first ones to walk away from their investments. In addition, builders who had been steadily growing for
years were now faced with an oversupply of inventory, and their reaction was to abandon projects or
drastically reduce pricing. So as investors and builders aided the growth of the boom, they are also having
a negative effect on the decline.
As if the combination of those variables was not enough, the credit environment in the US played a large role
in the housing decline and our current economic position. The personal savings rate in the US is very low. The
US currently has a per capita savings rate of 4%, which is less than half its average from 1970-1994. And as
low as 4% seems, that 4% is up from 0% in the late 1990's! This demonstrates the affect that the increase in
housing had on the US consumer. Consumers saw large profits from appreciating housing and adjusted their
focus from saving to spending. This led to a period of high consumption, and since consumer spending is a large
part of the US economy, the high consumption, and ultimately the appreciating housing market, fueled the economy.
At the same time consumers' focus shifted to spending, the mortgage industry began to adjust to take full advantage
of the housing boom, and debt became easily accessible. During this real estate frenzy the mortgage industry saw
the opportunity for large profits from a booming market and loosened its guidelines to qualify for mortgages to make
home ownership more accessible to consumers, prolong the rise in prices, and ultimately create larger profits. In hindsight,
the methods the mortgage industry adopted are very questionable, but hindsight is always 20/20 and very few complaints
were heard until it was too late. The mortgage industry began to make heavy use of Adjustable Rate Mortgages (ARM's)
and increased lending options to Subprime borrowers. ARM's are dangerous because low initial interest rates are replaced
with higher interest rates within a few years. If a borrower is barely making payments at the initial rate, then increased rates
will clearly be a problem. In addition, these ARM's were being offered to Subprime borrowers who are by definition less credit
worthy and typically less savvy when it comes to finances. As a result of the housing boom and the readily available debt, US
citizens felt comfortable taking on debt and spending the money they had. The focus on savings was replaced by a focus on
spending and easily attainable debt. In a rising market that cannot be sustained, this is a very dangerous combination.
The combination of all of these variables has led to the economic corrections we are experiencing today. Housing prices rose
to unsustainable levels, housing supply outpaced demand in many markets (Las Vegas, Florida, California, etc.), the mortgage
industry adopted questionable policies which made debt easily attainable, and consumers shifted from saving to spending. The
convergence of these variables has led to difficult times for the US economy. This market downturn has caused repercussions
that are rippling through the entire US economy. As the real estate market declined, some investors and end users found
themselves in negative equity positions on their homes, and to further aggravate the situation, ARM's began to adjust and home
owners realized they could not afford their adjusted interest rates. Delinquencies, and ultimately foreclosures, have increased
tremendously. Markets that were oversupplied have become further oversupplied and prices are forced to decline even further.
The banking industry has been forced to take back real estate and take tremendous losses. These losses have flowed to Wall
Street where hedge funds and mortgage backed securities invest heavily in mortgages, and investment capital has tightened up
tremendously. As the lending industry adjusts to the changes, guidelines to qualify for loans have become increasingly strict,
limiting the available credit. All of these economic systems are interconnected, and as debt becomes less accessible,
consumption declines, which forces declines in earnings for the economy, which drops the value of stocks, and ultimately
has an adverse affect on employment. The Federal Government is making attempts to help the situation by cutting interest
rates to stimulate the economy, but a recession seems likely...if it has not begun already. I will not cover the topic of a recession
here, but I will note that history tends to repeat itself, and taking note of the history of the housing industry demonstrates that
when housing starts have declined in the past a recession has followed. Currently, housing starts have declined, so it may be
wise to be mentally prepared for a recession.
It is not a pretty picture, but there are always good investments, and drastic changes bring with them great opportunities.
The trick is finding those great opportunities. As investors, what are we to do in this turbulent time? A few options are:
Keep your money in cash...save it in a bank, but make sure it is a bank that is not in trouble due to all of the current problems.
This is not the best option because the return is low.,
Invest in emerging markets around the world...India, China, the Gulf region,
Invest in commodities such as oil, natural gas, or gold (By the way, gold is sky rocketing right now, but the question is where
will it peak?),
And finally, the investment strategy that I feel capitalizes on the current market conditions the most is real estate.
Prices are low and still declining...great deals can be found. Areas that may have been too pricey in the past are now affordable.
Builders/developers and banks have inventory that they must get rid of and are willing to make deep discounts.
Interest rates are low and the Fed keeps pushing them lower.
The standards to qualify for a loan are very tight, forcing people to rent instead of buy, which creates higher rental rates and cash
flow on rental properties.
The key to investing in real estate in such a hectic time is to educate yourself on the current market conditions, find quality
investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals.
In this edition of our monthly newsletter, we have highlighted four separate partners/projects that approach investing in the
current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions,
and because the strategies use different approaches to investing and utilize various locations, diversification of your investments
remains a high priority.
Exclusive Partner Deal:
Blue Moon Capital - Turn-key Investment Model
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property
for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will
get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty.
Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are
ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland,
OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending
standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a
$0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking
advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment
. Please contact PropertyVestors for more information.
Select Private Lending Investments:
Richmond, VA
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects
are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private
Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real
estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH).
In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the
newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from
$15-$45k, offer 12% annual return, and have solid execution plans and security. Get more return than CDs, Bonds and Mutual
Funds!
American Homes
Greg Butler and Brian Rhodes are owners of American Homes, and both live in Richmond, Virginia. They have been in business
investing in real estate for 4 years, and they have completed over 100 real estate transactions. Greg and Brian are known for
their knowledge of the industry, their expertise in specific transactions, and overall business acumen. They have been invited
to speak at several real estate investment clubs, as well as a real estate negotiating class at Virginia Commonwealth University.
On average, AH currently closes 1-2 "Pretty House" deals (typically subject-to transactions, then use a lease-option exit strategy)
and 3-5 "Ugly House" deals (typically selling a house that needs repairs to another investor) a month. If you are interested in
private lending opportunities, please contact PropertyVestors.
Exclusive Partner Deal:
Lee Mill Heights - Emerging Market - Manhattan, KS
Manhattan, KS, also known as "the Little Apple," is a little known market with great potential. Manhattan's population is going to
double in the next four years! We have partnered with a successful and well-established builder in the Manhattan market who is
offering 2-4 unit buildings in a new construction development. This is a great opportunity to purchase new construction rental
property in an appreciating market with strong rental rates. These properties are sold to our group at a discount creating built-in
equity and potential for monthly cash flow. In addition, a management company has already agreed to manage the property for
5% of monthly rents, while the industry standard is 7-10%. The management company is available and ready to fill your property.
Please contact us for more information.
Preconstruction Syndicate Investments:
BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our
"Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative
strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective
addendums that are key to promoting profits and minimizing risk. The addendums even protect you in a softening market!
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means
to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the
developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to
maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply
diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative,
private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal
regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative
real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth,
while minimizing risk.
For general information about PropertyVestors or its offerings, email
invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (
www.propertyvestors.com ). PropertyVestors is a successful real estate
investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real
estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Check it out