How Can the Mortgage Crisis Boost Your REI Business?
On March 20, the blog discussed a recent article from Fortune magazine I think is essential reading for REI investors seeking build their businesses while so many others seem to be failing. The title of the story begs the question: “How bad is the mortgage crisis going to get?”
The answers from Princeton economist Paul Krugman are chilling, and they echo my sentiments that things are going to get much worse for the economy before they get better. Krugman has predicted that the crisis that began when subprime lending spiraled out of control, is likely to result in an average property value drop of 25 percent for homeowners. The domino-effect is expected to continue leveling markets — and the economy — until 2010.
Folks, I made some bold statements in Q4, 2007 that included my prediction that a major Wall Street firm other than Goldman Sacs would fail. At the time, I suggested that Bear Stearns, Merrill Lynch, UBS or Lehman Brothers were all prime candidates for disaster.
And as I write, the Wall Street Journal reports that Fed staff are literally on-site at Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Bear Stearns, which consented to be sold to J.P. Morgan Chase in a deal brokered by the Fed in March.
Each of these brokerages has borrowed from the Fed since it opened its temporary lending program last month in hopes of preventing another Bear Stearns style bloodletting on Wall Street — and the fall-out that would likely permeate the greater economy. These efforts represent the first time that the Fed has supported loans to entities other than banks since the Great Depression. (For details on the Fed’s temporary program that was deployed in March to provide emergency cash to ailing security firms, see yesterday’s post: “Fed Defends Bear Loans, Supplies Cash Tourniquets.”)
The U.S. Senate wants answers about how all this turmoil has happened, and a bipartisan alliance has asked the General Accounting Office (GAO) office to review the SEC’s enforcement program.
All this leads me to believe that at least one more Wall Street monolith will hit the pavement this year. But that doesn’t mean that real estate investors have to hit the ground, too.
Upon hearing such unsettling news from multiple, reputable sources, any REI investor worth his or her weight in Countrywide Financial stock should be posing the question: What are the implications to my business? An immediate response would be to move away from short sales into the profit zone with equity and wholesaling deals.
From where I sit, a critical indicator on the viability of the investor-based short sale deal is whether houses sold at foreclosure auctions are going back to the banks, or are sold to the highest bidder at auction. When more than 50 percent are sold to a private party as the highest bidder, then the climate is ripe for the short sale deal. Right now it appears that the short sale’s days are limited for many domestic markets — at least until market conditions improve.
For similar reasons, I also think that short sale deals requiring a discount on a first mortgage will continue to be weak well into Q2, 2008 because Wall Street us still trying to hide its massive losses.
For now, equity deals and wholesaling are emerging as the most potentially profitable opportunities out there for REI investors.
Beyond all the doom reported in the news, I firmly believe that this is a great time for entrepreneurs who are focusing their efforts on finding the right market niches, in areas that weren’t affected by boom and consequently are free from the devastation of the bust.
Investors who are using the right tools with the right training can always make a killing, even if they have to look a little harder to find the best deals. Surviving in the real estate game is all about adapting to market changes and capitalizing on market strengths and weaknesses.
Having been involved in the real estate game for most of my life, I’ve seen mighty markets rise and fall. I’ve also seen them rise again because the markets run in cycles that are easily identifiable if you know what you’re looking for. With the Internet, today’s investment opportunities for real estate entrepreneurs are, in many ways, brighter than they were before chaos struck on Wall Street.
I developed SalesTeamLive’s family of fully-automated direct mail marketing tools and training to be impervious to fluctuations in the real estate market. Armed with these tools and the the best training avalable, you can conquer emerging markets before the competition even knows they exist. That is the true essence of this business. If you would like to learn how equity and wholesaling campaigns can elevate your business to the next level, visit SalesTeamLive.
Tags: Bear Stearns, emerging markets, equity deals, GAO, Goldman Sachs, Lehman Brothers, Merrill Lynch, Morgan Stanley, Paul Krugman, Princeton, SalesTeamLive, SEC, short sale, wholesale deals