They're talking; oh, they're talking. The Chicken Littles of real estate are out and they're badder than ever. There's Doom and Gloom all around, and it's coming from people in all areas of real estate in places all over the country. Builders are complaining that their just-completed homes are sitting vacant in ghost town neighborhoods realtors are upset by the length of time that their listings are sitting on the market, and investors are struggling to find deals with margins.

 

I feel that, in these times, people who are meant to be in the business will prosper big time and people who aren't won't remain. They'll go after the next fast growth industry or try their hand at Wall Street. And that's just fine; but for those who wish to remain, here are three crucial areas investors must look at in order to continue growth and beat out the competition:

1. Realize that changes need to be made in your business alongside changes in the industry. We, as humans, spend a lot of time trying to avoid pain. We need to wake up and realize that the time of robust home sales, record low interest rates, and thousands of qualified buyers is gone; accepting this is the first step. It's just like being a crack-head; you can't get help unless you realize the situation. Accept the changes of your market and move forward with an action plan for success.

2. Take advantage of the downward cycle. In most national markets, major cooling off is going on. Let's talk about what this means, certain truisms:

Truth: Higher interest rates means those that were on the bubble will no longer be able to afford a home.

Solutions: People who could afford a home two years ago but can't now are going to do what? They are going to rent. This means more demand for apartments and lease options. Folks who were buying homes are now going to be staying in A-level apartments. This will cause rents to stay steady or increase, which will keep folks who might have been able to get into these A-level apartments into the B-level apartments. This will continue down the line which will cause better tenants in your apartments or homes. This is a good thing.

Truth: Skyrocketing foreclosure rates will continue to see record highs because of an unprecedented amount of ARMs adjusting, unscrupulous brokers and investors, misinformed and ignorant first-time homebuyers, and stupid investors getting in way over their heads.

Solutions: How can you make money from folks losing their homes and help them at the same time? There are several options. Seller financing by "subject tos" or land contracts will allow folks out of their homes but will hook up investors who are going to pick up great houses at rates when the people in distress refinanced two years ago on a 6% fixed rate. Although a flood of investors have crowded the pre-foreclosure (short sale) market in the last couple of years, these will continue to allow the patient and system-creating investor a great revenue source. Other ways to help out folks, such as negotiating forbearance agreements, will also provide value to homeowners and provide cash.

Truth: Lenders are being tougher and have more stringent procedures before loaning out their cash. Second appraisals and reviews are becoming common. They have been burned badly with fraud and with the number of bad loans most banks are holding, and they're trying to decrease their default rate. There is a direct correlation between the number of bad loans banks have and the amount of money they can lend out. I've heard it's in multiples of 3x-10x. For example, if Chase has $1 million of bad loans out, federal guidelines state that they have to hold $4 million in reserves. Banks make money by lending out cash; if they can't lend out cash, they can't get paid.

Solution: This is an excellent time to be working on your private money connections. Private money is money from other investors that would like a return on their money passively, as opposed to going out and doing the hustling that you're going to do. They charge higher-than-traditional rates, but it's fast and simple. You can use this for short term rehab projects or on longer lease option deals if you can get a good enough rate. Spend some time cultivating these folks; there are whole courses designed to help you find and attract them.

As mentioned earlier, this will also be an excellent time to learn creative financing. If a seller owns the home outright and doesn't need the cash, offer them terms. Tell them that you'll give them a certain amount on interest on their home for a certain period time before you have to cash him out. Taking over payments by subject to, land contract, or sandwich lease is also a good way to do that as well. In these times, figuring out ways to pick up property and make money with creative financing can make a lot more sense than filling out bank applications.

3. Systems, Systems, Systems.

As my old roommate, Zach, would say when I had my stuff all over the place, "System, System." I cannot stress how important this is. This should be a strong goal in any market, but when times are changing and the market weakens you have to be prepared and efficient with your time. If you are talking to every renter directly yourself, you are wasting time; if you are talking to every seller who is kicking tires or has two years to sell, you are wasting time; if you are meeting prospective tenants at your homes or apartments, you are wasting time.

 

Voice mail systems, online form submissions, live operators, websites with photos and home information, and many other methods can be used to cut down on wasted time. Having a system for qualifying potential deals long before you see the property is also essential for time management and allows you to focus on income-generating behaviors.

Some of the largest wealth ever created was during the Depression. While many folks were waiting on the street in large lines waiting for bread, others were making such huge fortunes that museums, libraries, concert halls, and foundations still carry their names. This is the time where you look at yourself and you ask what group you're going to fall into. Choosing success is not easy, but neither is lining up in a bread line. Keep Ballin'!!