Everyone these days is a real estate investor it seems. Mom and Dad, cousins, Uncle Joe, and the butcher down the street all have an interest in real estate investment. I dont blame them. Real estate has been a great way to make money for as long as I can remember. Its been the foundation of the word investment forever. Everyone knows that if you purchased a house 20 years ago that its worth many times more today. Even with real estate dips and crashes in certain area, real estates price rise marches forward. In the 1980s Texas real estate crashed hard. Houses were being sold very cheap because no one wanted them. People lost their homes to foreclosure by the droves. Could that happen again? Sure. It could. If you do a Google search for Real Estate Bubble you get over three and one half million references. Money Magazine, Warren Buffett, along with many others are warning of the coming bubble. Its such the rage that if we were headed for a bubble or not, its likely to be self fulfilling. When people reach the point that they believe a bubble is coming and start pulling out of real estate, the bubble will have arrived. Bubbles are nothing to be feared for the average homeowner that has lots of equity, low payments, and a steady job. They can weather the storm and do just fine. Sure they might be sore pressed to sell or refinance if they wanted, but if their intent is to live in the house long term, they wont even notice the bubble burst. Those that need to fear are overextended long term real estate investors. Those that finance every property to the hilt and barely make the payments are at risk. It can have a domino affect when an investor that has ten units gets in trouble with one of them, then two, then loses all of them to foreclosure. Less at risk are long term investors that have planned for the future and have their properties financed in such a way that they could carry them easily at less than 100% occupancy. Flippers have less risk. These are the type of investor that finds a money pit of a house and fixes it up, then sells. The only risk they have are the houses currently being worked on when the bubble bursts. After the bubble, they can continue flipping because houses will be at an even greater discount and people still need housing even in a saturated market. A fresh newly remodeled home is going to be more appealing than the average used home. Wholesalers or Bird Dogs have the least risk. These are people that locate old run down houses, put them under contract, and then sell the contract to the flippers and fixers. The only risk the bird dog has is the few bucks put down as earnest money. Bird dogs that dont hold properties can laugh at the bubble and even make more money once it bursts. Whatever type of investor you are, plan for the bubble now. If it comes, you will be ready, if it never comes, great, nothing lost. Just dont get caught holding over extended properties that you cant carry in case of a loss of tenants or a big reduction in rental income. |
