The history of markets tells us that we will always have a crash.
This graph shows total consumer debt in the US since 2003
Housing crashes come from over indebtedness, this graph shows that US consumers have more debt today than they did during the housing crisis in 2008
Total US consumer debt in 2008 $13T
Total US consumer debt in 2019 $13.9T
Total debt per US consumer according to US Census Bureau data: $41.77, this exceeds the record established in 2008 of $41.68 (this is total consumer debt divided by the entire population)
So, are we in for a crash?? UNLIKELY
There are two key financial indicators that tell us that US consumers are in better shape today than they were in 2008 (even taking the pandemic into account):
Consumers make more money; the median household income is up 20% from 2008, while total debt is only up 6.9%.
The second indicator is the consumer debt delinquency rate
2005: 4% 2016: 4%
2006: 4.25% 2017: 4.125%
2007: 6% 2018: 4.25%
2008: 8% 2019: 4.125%
Delinquency rates for 2020 are not yet available, but there is no evidence that delinquencies have spiked anywhere close to 2008 levels.
Anecdotally it seems unlikely that there will be a real estate market crash at any point in the next 3 to 5 years. The federal reserve has dropped interest rates to 3% or less, which is being reflected in current mortgage rates (a recent Buyer of ours put less than 5% down and obtained a 30 year mortgage with a 2.37 interest rate). The federal reserve is now committed to a low interest rate environment for the foreseeable future, IF they were to raise interest rates back to 4% ALL homebuyers and many consumers that refinanced their properties would be under water as purchasing power would decrease and there would be a subsequent impact on sale prices (historically there is an inverse relationship between interest rates and property prices; drop interest rates, property prices go up and the reverse applies).
What do you think? Many pundits disagree with me and believe that market is long overdue for a correction. Reply and let me know what you think.
Thanks Julio... We post pretty consistently on our website. We do some deep dive analysis videos there - we cover the up and the downside of our investment practice.
Generating Leads:
First, things first: (1) there are opportunities available on the market, (2) you do not need to become best friends with a real estate agent BUT you do need to have your stuff together; before you call the agent, make sure you have your financing in place & that you have figured out how much cash you will need to make the purchase. Agents/brokers like selling property to Buyers they know will always perform. (3) do not assume the Agent/Broker will do the diligence work for you… This is part of having your stuff together – make sure that you are doing your work up front, the Agent/Broker is only there to facilitate the purchase.
Baystate Auctions: this is an auction website, we check on this site daily
Towneauction.com: this is an auction website, we check on this site daily
MLS search: we have access to MLS, IF you do NOT feel free to email us we can connect you with an Agent on our team that will set you up with a feed for a preset search. If you work with one of our Agents, they will want to represent you in the purchase so be aware of that. The MLS is an underused source of deals… about 1/3 of our deals are sourced from the MLS.
Auction.com: online auction website, we check on this site daily
Hubzu.com: online auction website, we check on this site daily
Expired short sales: this list will come from the MLS, short sales are an excellent investment opportunity; find the listing, get a name & number for the Sellers and call them to see if they would be interested in trying again (this is how we brought 356 Chestnut St. Gardner, MA to market – the Seller had tried short selling for a year & a half, we called him and paired him with a broker that was able to get the deal done – both of us won, he got rid of the house & we bought an asset that is a really important part of our year)
Foreclosure starts: each registry of deeds has a search feature that allows you to search for new ‘complaints’, you will have to do some legwork to compile the list and then search for phone numbers BUT this is FREE… Realtytrac offers a service where you can get a list of foreclosure starts as well.
Probate: each county has a probate court & they release a weekly list of new probate cases filed; the docket will almost always include a name for a personal representative and the attorney representing the estate.
The key to having a consistent pipeline of projects is to work through all of your lead channels all of the time… Here is a rundown of our current pipeline & how we sourced the projects:
Updates on current projects:
If you have questions on financing, evaluating a project or looking for projects – email us, our goal with these seminars is to create a community of investors… We believe that if we grow a community that we will see more opportunities for making money through real estate. Thank you so much for taking time out of your day, we hope you got something out of it.
We look forward to seeing you on Tuesday at our meet up (if you are able to make it). There is no charge & we will serve refreshments. If you have clients that are interested in flipping properties or investing in real estate, they are welcome to join. We are cash buyers and use the meet ups as a way to network with agents, and other buyers.
We do not market products or services to agents during our meet-ups, so do not worry about that. Check out our site: www.ibuypropertyforcashtoday.com, we post on our blog regularly about our projects and issues we run into etc.
Here is an outline of the material we will cover on Tuesday evening:
Generating Leads.
1. Where to look?2. How to set an appointment3. How to prepare to get a deal
We'll also update the following projects:
44 Blanchard St Gardner, MA - purchased in June, resold by September356 Chestnut St Gardner, MA - purchased & cleaned out; currently pending zoning clearance 11 Scenic Ave Webster, MA - purchasing Friday October 16th
Meet up Date: Tuesday October 13th, 2020.
6-8pm @ 456 Litchfield St Leominster, MA 01453.
@Aaron Montague
New roof. New kitchen. Upgraded the systems & brought everything back to as close to new as possible.
@Darnell Kuykendall we have sold a ton of real estate on the south shore, no flips in that area. We finished the project in 7 weeks.
Investment Info:
Single-family residence fix & flip investment.
Purchase price: $125,000
Cash invested: $55,000
Sale price: $260,000
Fully renovated gorgeous Colonial style home in one of Gardner's best neighborhoods. Gorgeous and original hardwood flooring throughout the house. Kitchen is wide open with plenty of storage and granite counter tops; kitchen is furnished with new stainless steel appliances. Kitchen easily flows into the dining room, along with a generous living room and a sun room on the first level. Three bedrooms with ample closets on the second floor.
What made you interested in investing in this type of deal?
We are familiar with the Gardner market.
How did you find this deal and how did you negotiate it?
A friend of our ran across the opportunity, the project was too much of a commute for him so he passed it along to us for a fee.
How did you finance this deal?
We paid cash.
How did you add value to the deal?
Full cosmetic renovation & upgraded electrical and plumbing systems.
What was the outcome?
We were able to turn a reasonable profit.
Lessons learned? Challenges?
This project marks a big turning point for our business, we work as a partnership. Up until this project the responsibilities of the renovation were solely on one member of the partnership - with this project we realized that, one person managing the renovation piece was not the best way to work. Both partners jumped in, we saved some money, brought the property to market about two weeks ahead of time & cemented our partnership by further distributing the workload.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Adam Jaspon, Centerline Properties in Boston, MA.
Investment Info:
Single-family residence fix & flip investment.
Purchase price: $125,000
Cash invested: $55,000
Sale price: $260,000
Fully renovated gorgeous Colonial style home in one of Gardner's best neighborhoods. Gorgeous and original hardwood flooring throughout the house. Kitchen is wide open with plenty of storage and granite counter tops; kitchen is furnished with new stainless steel appliances. Kitchen easily flows into the dining room, along with a generous living room and a sun room on the first level. Three bedrooms with ample closets on the second floor. Property features a full bathroom on the second floor alongside the bedrooms and a half bath for convenience on the first floor.
What made you interested in investing in this type of deal?
We are familiar with the Gardner market.
How did you find this deal and how did you negotiate it?
A friend of our ran across the opportunity, the project was too much of a commute for him so he passed it along to us for a fee.
How did you finance this deal?
We paid cash.
How did you add value to the deal?
Full cosmetic renovation & upgraded electrical and plumbing systems.
What was the outcome?
We were able to turn a reasonable profit.
Lessons learned? Challenges?
This project marks a big turning point for our business, we work as a partnership. Up until this project the responsibilities of the renovation were solely on one member of the partnership - with this project we realized that, one person managing the renovation piece was not the best way to work. Both partners jumped in, we saved some money, brought the property to market about two weeks ahead of time & cemented our partnership by further distributing the workload.
Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?
Adam Jaspon, Centerline Properties in Boston, MA.
M3 Innovations, Inc.
Asset Class Definition
Single Family Residential
First time home buyer
Move up home buyer
Luxury
Condominium
Multi Family Property
A, B & C towns: What are the differences? How do they affect my decision making?
This will be our main topic today, BUT before we jump into that we can go over our current projects.
44 Blanchard St. Gardner, MA 01440
Purchase price: $125,000 Wholesale Fee: $15,000
Under Agreement For: $260,000
Renovations: $55,770.40
Projected Profit: $46,354.09
Total Time: 95 days (6/15 - 9/20/2020)
Purchase Price to ARV: 53%
‘All In' to ARV: 75.29%
Town Rating: ‘C’ town
Target Buyer: First time homebuyer or someone downsizing
How did we find it? Introduced to us by a flipper in Boston
How did we finance it? Cash. Pandemic complicated our financing with our standard lender, we loved the project and wanted to complete it quickly so we decided to purchase the property in cash. This also meant that we had to pay for the repairs in cash.
Issues Along the Way: We lost our painter. He did a great job with the exterior and did the big items inside the house (ceiling & walls) but we ended up stepping in and completing some of the hallways and bathrooms.
Rules:
356 Chestnut St. Gardner, MA 01440
Purchase price: $60,000 Short Sale Fee: $5,000 Water/Taxes: $4,100
Appraised After Renovation Value: $320,000
Renovations: $123,000
Projected Cash Out: $40,000
Projected Total Time: 90 days (8/31/2020 - 11/30/2020)
Purchase Price to ARV: 18%
‘All In' to ARV: 63.46%
Town Rating: ‘C’ town
Target Buyer: We will cash out refinance & rent the property out
How did we find it? Cold calling, Seller had previously failed to complete a short sale; we made him an offer and connected him with a Broker that successfully negotiated the transaction.
How did we finance it? Hard money. The terms of the hard money loan were abnormal. We were required to put down 25% of the total loan amount because the renovation loan exceeded the purchase price. The lender wanted us to have more ‘skin in the game’ since they had so much exposure. Our rules will come in big with this project, since the renovation is so extensive it is highly unlikely that the lender would have lent the money IF we had paid significantly more for the property. The low purchase price gives them plenty of protection if we were to default.
Issues Along the Way: The $123,000 renovation budget is actually not enough… In this case we will have to do the clean out, a lot of the demolition and painting. Our goal is to complete a cash out refinance in March of 2021, as long as we stay within the $123,000 budget we will be able to refinance the property, pay off the hard money loan & take $40,000 for ourselves. This will leave a $240,000 mortgage on the property, which will give us a roughly $1,800/month mortgage payment and we expect to get about $3,000/month in rents from the three units.
Why is it important to define your asset class when you are investing?
Asset class refers to the type of property you are looking to buy, specifically, single family, multi family, condominium or commercial; we are NOT commercial specialists, so we will not cover commercial real estate during the course of our seminars. The type of property you buy will set the table for what you will need to do to get money out of it.
Single family property is the most common type of property for flippers and real estate investors. We fit single family properties into three categories:
Typical End Buyer Financing Standard Buyer Needs
First time buyer FHA/USDA/VA/Conventional 2 - 3 beds, 1.5 baths 1,100 – 1,700 sq ft
Move up buyer Conventional 3 – 4 beds, 1.5 – 2.5 baths, 1,700 to 2,400 sq ft
Luxury Conventional 4+ beds, 2.5+ baths, 2,400 + sq feet
First time home buyer, this will be your largest pool of buyers. These buyers are normally using low money down programs and are buying a home in order to accommodate the needs of their family. Low money down programs like FHA, USDA and VA are regulated by the federal government and as a result have high requirements for the property's condition. IF you need specifics on these programs, talk to Dennis Ouellette. It is critical that you understand the construction standards that you need to meet for your likely end buyer to get their financing.
Things to look out for: windows, chipping paint, railings, steps, landings etc. The overall condition of the property at time of resale has to be ‘Fair’ or better. Properties with just one bathroom are tough to sell. The property should have a bathroom on each level, otherwise it will be tough to sell.
Financing for Purchase: very straightforward, since there are a lot of comparable sales; single family properties are the simplest to finance because they are low risk for lenders (lots of comps & lots of buyers).
Exit strategies: Flip or rental. Single family properties are not great rentals from a cash flow standpoint (normal margin on a single-family property is between $150 - $200 per month), but you typically find better tenants.
What kind of renovation: Avoid changing floor plans. The fact that single family properties are in demand makes the purchase market for them competitive, so manage your costs.
Condominium flips are difficult, because the value of the properties are fixed to the other units in the complex.
Standard End Buyers: first time home buyers (those that have not yet started their family, are typical) and empty nesters looking to downsize.
Financing: you will need to know your numbers, condos are tricky to finance for investors since the comps are clear cut (max a lender is likely to lend is 75% of the ARV, including your renovation)
Renovation: look at recently sold units and do your best to meet those standards.
Exit Strategy: Flip or rent. Condos make excellent rentals (maintenance is factored into the HOA in most cases) but they are typically low margin (expect to make between $100 & $200/month).
Things to Look Out For: restrictive HOA rules, many HOAs do NOT allow for rentals & have strict rules about things like pets, common area use, parking and exterior spaces (decks, patios).
Multi Family Properties are great projects to build long term, passive income. In many markets they are also great flips
Standard End Buyers: owner occupants looking to build long term passive income by becoming landlords, and rental investors
Financing For Purchase: straight forward
Financing For Resale: financing for Buyers is stringent, Buyers are required to put good money down and to have 6 months’ worth of mortgage payments in reserves; these standards are good for you as a Seller, as you are unlikely to field offers from unqualified Buyers
Renovation: If you expect to keep the property as a rental yourself, you should focus on making sure the roof, the electrical, the heating and plumbing are in great shape. Do not focus on cosmetics such as granite countertops, whether you sell the property or keep it yourself as a rental what matters most is the functionality of the units.
A, B & C towns: What are the differences? How do they affect my decision making?
A towns: Are typically suburban and command high price per square foot prices. These towns normally have lots of single family homes and few multi family properties. These towns are desirable because they normally have highly rated public school systems. These towns do not normally have easy access to public transportation.
B Towns: Are typically a mix of suburban with more urban areas, these towns have a higher mix of single family and multi family properties. These towns have broad appeal because they are cheaper than A towns, and have strong public school systems in the suburban pockets. B towns have a bit more public transportation.
C Towns: These are normally urban areas with lots of multi family housing and apartment buildings. C towns are typically classified as C because of the perceived quality of the public school systems and public works.
A town’s perceived rating does not have an impact on our decision making; we make purchase decisions based on our determination of the target property’s profit potential.
Examples of A/B/C Towns:
A B C
Shrewbury Holden Gardner
Northborough Auburn Fitchburg
Westborough Westminster Millbury
West Boylston Lunenburg Southbridge
Southborough Billerica Spencer
Princeton Somerville Lowell
Harvard Medford Malden
Cambridge Woburn
Concord Framingham
Newton Chelmsford
Bedford Groton
Burlington Melrose
Winchester Arlington
Lexington Tewksbury
1. Hard money
2. Good experience, I have a standing relationship with my lender so I understand their process & have an internal system to put together deals.
3. I have made a number of purchases in cash, I like saving the closing costs & fees BUT I like the flexibility I get from using hard money financing (the tax benefits are also useful).