Educated, savvy real estate investors have the upper hand in today’s marketplace. Why? Because today’s housing market and economy are still a total mess, but the result is a wealth of opportunity, if you know where to look and how to look. Unfortunately too many investors don’t know where to even begin. They’re using systems that only work when the market is strong or on the upswing. They don’t know about lease options, and how mastering that strategy can result in quick profits in your pocket. More on that in a minute; first, let’s take a look at where we are now.
The economy is still very delicate, despite reports to the contrary. We’re not on solid footing yet. Unemployment is still high, and even though the official number has gone down, the amount of people who are underemployed is huge. If the government stopped borrowing, we would absolutely be in either another recession or all-out depression. The government is taking on debt every month to fund the government, perpetuating a debt-based society, which is not actual growth.
Take a look at some of these statistics about the housing and foreclosure market and you’ll quickly see that things aren’t completely stable, by any means. But a closer look at the numbers reveals significant opportunity for real estate investors:
- 48% of all houses on the market in some state of foreclosure.
- 46.1% of all home purchase transactions are made up of distressed properties.
- The volume of serious delinquencies and pre-foreclosure homes overshadows the number of actual foreclosures by 50:1 – property values won’t go up anytime soon.
- 5 million properties are in shadow inventory now (bank owned, but not yet on the market).
- 1.2 million foreclosures will happen in 2012 that should have happened in 2011.
- 1.8 million new foreclosures are expected in 2012.
- 2 million properties are seriously delinquent, but have not filed foreclosure yet.
- Banks are not starting foreclosures until homeowners are about 7-8 months behind in payments.
- 11 million homeowners have negative equity in their homes.
- 16 million homeowners have less than 10% equity in their homes.
- The average foreclosure is started when homeowners are, on average, 396 days behind on their payments.
What does all this mean? It means that banks are playing a game with their numbers. There are way too many houses on the market, with more to come.
Banks still aren’t lending, even to qualified applicants, and credit is getting tighter by the day. Banks are narrowing the gap of who they will loan money to. According to the Wall Street Journal, the 10 largest mortgage lenders have denied nearly 27% of loan applications in 2011. In 2007, the requirements for approval on a prime mortgage loan were more accessible to the average homebuyer applicant. Today, they generally require a 20% down payment, debt-to-income ratio of 33%, credit score of 680-720, 2 years of W2s, 12 months of fall back reserves, to name a few.
What does all this mean to a homeowner? There are a lot of homeowners out there who can’t sell their houses, and a lot of buyers who can’t buy. There just aren’t as many buyers period. So homeowners need to get realistic, and that’s where we can help. The old strategies for making money in real estate takes too long – sometimes 6+ months. Getting paid quickly is a tough thing, unless you know how to connect those sellers and buyers I just mentioned. By connecting buyers and sellers, you can earn an average of 3-4% of the purchase price. On a $150,000 house, your profit can be around $4,500-$6,000 just by matching people up, and usually in 4 weeks or less!
The solution I’m talking about is lease options. In a lease option transaction, you find a homeowner who is open to renting their house long-term towards an eventual purchase, and someone who is open to renting a house rather than buying due to an inability to get a loan. When you match the two together, everyone wins.
How do you go about finding sellers who are willing to agree to a lease option rather than retail sale of their house? That’s the first place to start. Finding a homeowner who is open to renting and finding someone who is open to renting it is huge. You need to first find that homeowner who is a potential lease option seller.
