Ok, so let's agree, we're all pretty bearish on the Real Estate market right now. The Sub Prime blues, the rising unsold inventory, the tightening of credit, and the ongoing decline of prices have created the perfect storm of bearishness, which some recent writers here are predicting may last several years.
So why am I writing an article to tell you how to prepare NOW for the end of the Real Estate bear market?
Because if you prepare for it now, when it happens you will be in the best possible position to take advantage of the myriad of opportunities that will present themselves. If you only begin to prepare after we hit bottom, you may still do well, but you will miss the largest profits.
As a Real Estate investor, you need three basic things: The first is excellent credit, the second is enough money for down payments on properties, plus reserve funds for repairs, improvements, vacancies, etc. The third thing is to have a strong basic knowledge of your market area.
Excellent credit will help you receive the best possible terms (ie. lower interest rates, fewer points) on investment loans. If your present FICO score is not 700 or better, NOW is the time to work on improving that score. Some simple things you can do to raise your score are 1) Pay all your bills on time, 2) Substantially reduce the amount of your monthly balances on credit cards, and 3)Keep credit inquiries to a minimum.
As for savings, to invest in Real Estate you generally need to put at least 10% down. While 10% will give you greater leverage than putting down 20%, and thus increase your "Return on Investment (ROI)", putting down 20% will improve your interest rate, as well as eliminate the need for Private Mortgage Insurance (PMI), which can run anywhere from about $50-$100 per $100,000. So now is the time to save, save, save!
In addition, now is the time to learn the best local areas in which to invest. You should be checking out prices in different areas, and keeping a log of each area and its price variations over the next six to twelve months. If you are buying rental properties, then now is the time to investigate your rental markets to determine supply and demand, as well as rental prices. Areas of over supply and/or lower rents should be avoided. I am not a big proponent of "flipping", the rapid re-sale of homes, but I will save that for another time.
And while we are on hold, waiting for prices and interest rates to come down, now would be a great time to visit the library and do some reading on property management, landlording, and buying real estate. Look for the books with sensible titles, not the "Get rich in 30 days" type.
Do these things now and when that day finally comes when the "blood is in the street" (ie. screaming bargains are plentiful), you will be ready to lock in property purchases at prices that will deliver to you some hefty profits over time.
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