August 25, 2007
The housing market is not yet in disaster mode in the nation's non-bubble regions, but there is nothing on the horizon that indicates relief. Liquidity is falling, so equity is falling.
John Schaub, who moderates my Q&A forum on real estate, has a new book, "Building Real Estate Wealth in a Changing Market." It is published by McGraw-Hill. He argues that you make your money by smart shopping. If you are at all interested in this field, buy the book.
You don't buy distressed property. You buy from distressed sellers. Look for a seller with a need to sell.
As the stock market falls, the economy will slow. This will produce unemployed workers who cannot meet their house payments. They will have a great need to sell.
It's getting hard to buy with 5% down. But if you buy from a bank that has repossessed a house, you can get in for no money down. The bank needs to get the house sold. It can waive the rules for a down payment if it thinks the borrower is unlikely to default.
This creates an opportunity. To persuade a banker that you are not likely to default, deposit a lot of money his bank now, before you ask for a no-money-down loan for a foreclosed house. If there is a local bank that you know was active in the boom, consider depositing your money market money fund there. You want to get a relationship with the local banker.
This money is not used to make a down payment on a foreclosed house. It is used to persuade the lender that you will not default. The down payment is merely a way for the lender to reduce your likelihood of defaulting.
Find out who is in charge of the real estate division of the bank. Your goal is to become Mr. Helpful for him when the bank is sitting on a pile of repossessed houses. That could be within a year.
Establish a relationship with him now. There is no rush. But since you must keep your liquid funds somewhere, make it an institution where you can meet face to face with someone who may have repossessed houses on his hands when you are ready to buy for no money down.
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