What Happened?

As the real estate market boomed throughout the early part of the 2000s, mortgage companies wanted to take advantage of the bull market. One way they did so was by creating and selling exotic mortgages that virtually ignored the applicant’s creditworthiness.

Why did they do this? Because these companies simply sold the mortgages to large banks, meaning that they assumed no risk. They did not care if a person was unable to make their payments because if they defaulted on the loan, it would be the problem of the bank that now owned the mortgage.

When the real estate market weakened, prices began declining. At the same time, interest rates on millions of adjustable-rate mortgages rose, and pretty soon many people, not only could not afford their payments, but often times they owed more on their homes that they were worth. People began defaulting on their loans, and because the big banks bought millions of these loans from mortgage companies, their balance sheets were suddenly in the red.

Opportunity

Home prices have fallen dramatically in recent years. Since peaking in 2006, home prices have declined 27% across the country. And they are still falling. With the roots of today’s economic crisis firmly planted in the real estate market, it may be natural to assume the entire market is toxic and that investors should stay away.

Nothing could be further from the truth. No matter the economic conditions, irrespective of the industry, there is always lots of money to be made if you know where to look. Today’s real estate investing market is no exception.

For the wholesale real estate professional, the keys to success have always been to find the right property at the right price, then have a list of buyers ready to assume the contract. The challenge today is not that there aren’t enough properties (there are an ample supply that grows every day) nor pricing (banks and individuals are desperate to unload these properties). The difficulty today is finding reliable buyers for these properties.

Properties and Prices

Home prices continue falling. With banks, mortgage holders, and cash-strapped homeowners desperate to unload their “toxic” mortgages, the opportunities for wholesalers are exciting. In Los Angeles, home prices are expected to drop another 22% in 2009; Miami, 21%, Phoenix and Las Vegas, 20%, New York City, 19%, Boston, 15%, and Seattle, 14%. Granted, these are among the most challenged markets in the country right now, but rest assured there are many opportunities available across the country at the moment.

The Buyers

Here is where things start to get a bit dicey. The economic slowdown has its roots in real estate, but the effects have rippled across the economy. Banks, stung by their losses in the mortgage area, have begun hoarding cash, freezing the credit markets.

With financing becoming increasingly difficult to come by and people nervous about whether or not they will lose their jobs, many are unwilling to make any significant purchases at the moment. This has many real estate investing professionals and buyers spooked.

The Solution

Wholesalers need to be creative in the current market. Strolling into a neighborhood overwhelmed by foreclosure could net you a great deal, but who’s going to buy it? You may be better off looking in more-established areas where there are fewer available properties, but have a greater chance for a quick sale.

Real estate wholesalers may also want to look at market alternatives, especially rental housing/apartment buildings (all those foreclosed families will need a place to sleep!). The positive rental cash flow presents attractive opportunities.

But the most important thing to keep in mind is that, as a wholesaler, you are not trying to sell to the general public. You are selling to professionals, people whose business is real estate investing and have the capital to withstand market downturns. Thus, a solid buyer list is of the utmost importance.

By: Ron Odom

About the Author:
Ron Odom is an expert real estate wholesaler in South Jersey. Ron has been investing in real estate for over 13 years. He currently coaches students in real estate investment strategies. Visit Ron’s site http://www.newjerseywholesaler.com/wordpress/ to see the best wholesale deals in South Jersey.