Amid all the negative economic news in the media, there are clear signs that the real estate market recovery has begun. “The national residential real estate recovery has begun and by June 2009, the excess inventory of available homes should be absorbed,” according to Alexis McGee, president of Foreclosures.com, a leading real estate and property information specialist.

“Recovery is underway. Affordable [housing] is back in the housing market,” says Sacramento-based McGee. “In 2009, housing will not only recover, but we’ll see buyers leap into this market in droves, depleting our housing oversupply, and actually putting higher price pressures on the market.”

New Mexico is in good shape, quotes the article, and our preforeclosure rates and repossession rates are among the lowest in the country. In the hardest-hit states of California, Arizona and Nevada, these default rates are down significantly and repo’s are down over 20% nationwide. It appears that some aspects of the fed’s housing recovery efforts are having positive effects and now investors are picking up steam reentering the market.

I’ve been predicting for several months that areas of interest to us (bargain hunting investors) such as southern California, Phoenix, Las Vegas, and southern Florida would hit their bottom in February and that appears to be happening. I’ve also said that the Albuquerque real estate market hit its bottom in the Fall 2008 and that is supported by local leading and lagging housing indicators.

If you’re an investor, the next 6-9 months will be very exciting… if you’re active and not sitting on the fence. As general economic news gets worse, real estate investors should be getting more excited since we know that real estate recovery begins about 6 months before general economic recovery. As Warren Buffett says: “Be fearful when everyone else is greedy (2005-6) and be greedy when everyone else is fearful (2008-9).”

This is the time to buy if you’re an investor.

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1. Commercial lending is virtually at a standstill in late 2008 and early 2009. Watch for distressed commercial building sales as conduit loans and other 7-10 year loan instruments come up for renewal or rollover to permanent financing, which is almost nonexistent.
2. Expect retail, industrial and office rents to decline and vacancies to rise.
3. Residential loan availability is improving. Multifamily (apartment) loans are more available. Expect apartment rents to rise in 2009 by 2.8%. Expect apartment vacancy rates to remain stable in 2009 compared to 2008 (5.8% avg, <5% in San Diego and 8.5% in Florida/Phoenix).
4. Residential home loans are as low as they are ever going to get, hovering around the 5% mark (because the Fed has lowered rates are at 0-.25%). If you’re buying to live in or hold, stop thinking about it and do it. Home and flip prices may not rise immediately, but they most certainly will NOT continue to fall. Home prices are down about 30% in the hardest hit areas like Florida, Phoenix, and California (and down 5% in “some parts” of Albuquerque where I live and work).
5. Savvy investors are turning to hard money and PRIVATE MONEY to finance their flips and apartments. Call or email me for details and connections.
6. Refinancing is way up, according to all my contacts at lenders and title companies. For folks previously trying to sell, mortgage rates are now low enough (~5%) to make refinancing a wise choice. Even if you only get a “no-cash-out” refi, it still makes sense, especially if you’re an investor who needs to get out of a bridge/construction loan to get your payment down and get competitive rents for your house or apartment.
7. Competition is increasing for bargain-basement deals. Last week, two of the projects I featured on my list got quick offers as investors moved on great bargains. If you’re looking for bargains, don’t wait until the end of the week to call me. And don’t assume that you have plenty of time “because it’s a buyer’s market.” The bargains go off the market quickly, while the “not-bargains” will sit on the market for a long time for unsavvy investors to “look at” and pick over! Do your market comp research and move fast, especially if you find something at 50-60% of market value.

RSS this blog feed (at the very bottom of this page) so you’ll know when new articles and training videos are posted. Also, post your comments or questions here, or email me jeffrey@jeffposton.net

On my weekly distressed property list, I’ve already done the analysis of each listing for you. I’ve already filtered my “list of dozens” down to the 1 or 2 that are really profitable and gotten rid of all the not-quite-bargains. But if you get your own list online or from another Realtor, you’ll need a system to evaluate each listing quickly in 60 seconds or less so when it’s time to go look at properties, you won’t waste your time.

So in this new video you’ll find examples of how to use the investor profit formula to quickly determine the viability of a flip project in 60 seconds or less. You’ll use the exact same formula I use in exactly the same way and I’ve only lost money on two projects in 16 years – and that was because we didn’t stick to the rehab budget both times.

Click here to see the video.

RSS this blog feed so you’ll know when new articles and training videos are posted. Also, post your comments or questions here, or email me jeffrey@jeffposton.net

[Names and exact details are always changed to protect clients’ confidentiality].

So our investor – let’s call her “Investor-Mary” – bought her fixer-upper foreclosure at full asking price, which was still a killer bargain, of about $140K. She put $35K into the rehab in 10 weeks. Problem was, it was ready for the market right when the mortgage crises exploded, and nobody was able to get loans without perfect credit.

So what is an investor to do?

Well, in response to market conditions, I started advising my investors to move from the buy-rehab-sell flip business model to the buy-rehab-refi-sell business model. This is because there are two critical components to rehab success: Return on your investment and Return of your investment.

Return on investment is your profit. It’s how much you earn on top of your initial cash position. Return of investment is simply getting your initial cash investment (downpayment plus rehab cost) back.

In a perfect world (i.e., seller’s market, when properties are flying off the market) you sell your completed rehab project and you get back both components – your return of investment and your return on investment. But in a tough buyer’s market, it takes several months on the market to achieve this, if you ever do. But you can still get a fast sale if you offer terms.

But you don’t want to put a bunch of cash into a property then sell on a REC so that you won’t see any return for 2 or 3 or 4 years. That’s why I recommend refinancing. And that’s exactly what “Investor-Mary” did.

She refinanced and pulled ALL of her cash (downpayment + rehab cost), then sold the house on a 4-year REC. She pulled off a veritable investor coup. She got her asking price AND she’s getting positive cash flow AND she got ALL her capital out AND she’s getting interest on her profit for 4 years. Going into the project, I told her she’d make about $36K net profit. Turns out she’ll make about $43K and that’s not including her interest income. In a buyer’s market, it doesn’t get any better than that.

TIP: Don’t wait until you’ve made 10 months of mortgage payments and you’re running out of cash before thinking of refinance. Do it early and you likely will be able to sell faster.

Post your comments or questions here, or email me jeffrey@jeffposton.net