The big hot topic on the news as the current economy. What is a real estate investor to do in a down market? What can a real estate investor do to increase their portfolio? Can I continue being a real estate investor in this economy/market? What are we going to do to fix the current economy? Who’s going to fix the current economy? How much money do we have to give large companies in order to fix their bottom line? Who’s to blame? How was the President-elect going to save us? Which new political party is going to come in and save the day? And most importantly, who is in the steer this boat to the Promised Land?
Here’s the answer: You the Real Estate investor/small business owner!
In the last 200 years of the economic growth of the United States of America, we have never faced an economic challenge like the one we have now. Our economy the last 50 to 60 years has slowly started to phase out from being in a commie based on manufacturing goods to becoming a service driven economy. Perfect example of this is the Internet. In the last 10 years that the Internet has been available to us, more millionaires have been made by offering information-based services than by actually manufacturing a physical product.
If we go back and look at our history. The past recessions, such as the 1920s as well as the more recent tastes and feelings of recession in the 70s 80s and a brief touch in the 90s. Most of these recessions were stopped or drastically shortened by the American worker getting out and putting their nose to the grindstone.
While government work programs and social projects can operate Band-Aid fix to the current economic crisis there and not the long-term solution. That comes down to the investor.
I’m going to be focusing on the real estate investor for one simple reason, the most immediate fusion of labor ready jobs across the nation falls into the real estate and the real estate services category. Real estate investors, for decades have made money, and in some case, the vast wealth by buying low income properties and fixing them and flipping them to other buyers were holding onto them and using them as the stable of their investments portfolio.
Let’s take a look at just of few examples of the basic services that are going to be used in utilized in order to accomplish a typical small-scale real estate investment. For the sake of discussion, we are going to use a single-family residence with a fix and flip tactic.
R.E. investor finds a property that would fall within a fix and flip category with a profit margin of say 30,000 after renovations and repair. Once a project has been purchased, the investor then sets out to increase curb appeal as well as make any renovations necessary to increase the property’s value. Now let’s look at some of the people that would be hired to accomplish this task.
The exterior of the house: we could be looking at a basic gardener to a landscaper all the way up to a landscape architect. Obviously the costs of each one of these individuals would increase depending on the severity and extensiveness of the project which their contracted.
For the interior of the house: we could have a handyman, a contractor/remodeler, electric contractor, heating and cooling specialist, drywall specialist, plumber, demolition crew, and any subcontractors needed to fill in the necessary skill base in order to increase the value of this investment property.(In the event of a room addition. Let’s not forget the necessary permits and inspectors required to bring the property up to code).
Now without getting into the ins and outs of who hires whom, be a contractor using day labor or a professionally managed and staffed crew, the point being made here is the immediate stimulus to the local working economy of the community.
Banks and lending institutions
Since the subprime lending crisis became top news in the middle of 2008, real estate investors have been scrambling to find funds to continue with their real estate investing operations. At the beginning of 2009 we have yet to see the banks who received bailouts, lift lending restrictions to small real estate investors, let alone the service companies that support them. This lack of available capital, which was so plentiful for the last several years, has caused a dramatic reduction in real estate investments. Which has helped put a stranglehold on economic recovery within the select area of national concern?
So how does the small time investor get around this problem?
Answer: Find new and alternate methods of funding.
This is where you have to break from that mold that you used. Just a short time ago with them last few years you could find an investment property walk into a bank and if you had a fairly decent credit score and the numbers made sense you could walk out with the loan. This is obviously no longer the case.
In the current economic climate the real estate investor needs to be more than savvy on just finding good real estate investments, he needs to be savvy on finding good networking contacts. This has never been more important than it is now. Few years ago during the height of the real estate surge. You could walk into a local real estate investment group. Maybe sit down at one of their meetings, and basically walk away with potential good solid leads on real estate investments. That’s because at the time the focus was on the property and not on procuring the funding.
The current economic climate forces us to change our focus. While property investments abound due to short sales and foreclosures, it is the funding that is in short supply. However, the funding is available.
Real estate investment groups have been around for decades. These groups are saturated with both traditional real estate lenders, as well as private and hard money lenders.
To many the term “hard money lender” conjures up evil pictures of greedy baseball bat wielding clubs that are prepared to cause you physical bodily harm in the event you don’t pay. While I’m sure these men exists in my many years of real estate investing. I have yet to actually meet one.
The most common trade-off of using a hard money lender or private money lender versus traditional lending is interest rate. Due to the fact that the interest rate is normally several points higher than a traditional loan. It becomes that much more critical of the real estate investor to do his due diligence and homework. When considering the property for investment.
Investment groups are also of extreme value to R.E. investor due to the networking opportunities beyond just funding. The new real estate investor has the opportunity to network and a vast amount of various with people at share the same common goals as their own, as well as greatly increases their learning curve without having to pay for it out of their own pocket.