IF YOU LOST MONEY IN THE REAL ESTATE MARKET

IF YOU LOST MONEY IN THE REAL ESTATE MARKET

Where are really my deposits? How do I get them back?

How to profit from a group purchase approach.

 

If you made a commitment to purchase a property in pre-construction and you put down a deposit and did not go to the closing, technically you have bankrupted the Developer.  The perception is that Developers, have big egos, are greedy and pushy, however there are some Developers that did deliver what they promised they would deliver.  The market changed and affected every one of us the same.  Most Developers, not only are not making money, they are already bankrupted or in reorganization and they can not reduce the property prices below what they owe to the bank.

 

Which brings us to our next point “When the Bank loses money you win.” The approach to negotiating with the bank has a lot to do with timing.  Remember banks are not in the Real Estate business.  Banks are in the money business and they do not want to lose more money by holding Real Estate for too long, since they prefer the cash to reinvest it, even if they have to take a big cut or a big loss.  However with the same token they are not going to go down without a fight.  They will try several approaches to get the most amount of people to purchase at higher prices and as they fail to attract enough buyers to come to close, they will gradually reduce their prices.  When this happens, a big opportunity is created and individual buyers that put their deposits into these buildings at pre-construction can not compete with bigger investors that come to buy in bulk the whole property at a fraction of the price. These powerful investors are competing as we speak for a chance to make it big and get the next big deal.

 

So how can a single buyer win in these scenarios?  One solution is to “mix and match” and group people together that share common interests such as type of property, place of residence, rental property vs. primary residence etc.  The only problem is that grouping more that two individuals will not work in any given building.  The reason is that the Developer is already holding and in most cases has spent your money, so it is better for them to keep four buyer’s deposits than to give one apartment away in exchange.  However, groups of up to two people have been proven to work in some case-scenarios. 

 

A second option is to acquire negotiation leverage by grouping buyers for individual purchases.  This can be very effective.  Grouping together Real Estate packages rather than people is the most accepted way in which the bank and the courts will make a quick decision in favor of the purchaser.  In this case purchasers will be competing with sophisticated investors for the building.  In my opinion, the original purchasers that defaulted and are having problems getting the money back from the Developers, should have the first right of refusal when making an offer in court.  This initiative can be organized building by building (at least in the remaining buildings). If you purchased a property at $600-$800 per Sq.Ft. and today you can buy it for $400-$500 per Sq.Ft., you might be able to get away with $200-$300 per Sq.Ft., depending of course on the quality and location of the building.  But pay attention this can not be accomplished by individual efforts. 

 

Lets face it, you may not get your deposits back, you may only get a fraction of them or you may get this fraction in a year or two.  But if you can acquire a property at half of the price that you originally purchased it for, is it worth more than the deposit that you originally put in place. So what are you going to do? Sit a year or two waiting for that fraction of your deposits and watch your cash depreciate? Or close at the right price and for the next five years sit on a Real Estate investment that will certainly appreciate.