How Are Successful Real Estate Investors Benefiting from the Housing Recovery?
Successful real estate investors are benefiting from the real estate recovery in several ways. Whether it is by leveraging their experience and resources, securing their financing, taking advantage of today’s stricter lending guidelines, or capitalizing on inflationary conditions, real estate investing is proving to continue to be a very attractive financial vehicle for cash flow.
Leverage Your Experience and Resources
The housing market has been on a continued up-swing. For example, CoreLogic reports that the number of houses sold in February was up by 9 percent when compared to last year, and that home prices had risen for 47 months in a row. While the number of properties on the market is increasing, real estate investors can take advantage of their experience and resources, which give them a competitive edge over first-time homebuyers.
With housing recovery on the rise, competition for new listings can be fierce. For example, successful listing agents want to have buyers lined up for a property when making their listing presentation. Use this to your advantage by making sure the Realtors in your network know your buying criteria so they can bring you the best deals before or right after their listing presentation.
Leveraging your cash is another way to use your resources to capitalize on the hot market. By using blanket loans or other private money solutions, successful real estate investors can maximize the leverage of equity in their existing portfolio, and minimize their cash exposure. Using these tools allows investors to secure additional properties in the same area or spread out over a larger region. When coupling the abundance of new houses on the market with low mortgage rates and investor-friendly private money loans, the opportunity to purchase additional investment properties is even more attractive.
Secure Your Financing
Because of the increased competition, you will want to be ready to write the deal right immediately with your Realtor. This can give you an advantage over first-time homebuyers, who might not be prepared to make a quick decision for a home purchase, or who may not have known to get pre-qualified for financing. When buyers don’t have financing in place, sellers are less likely to accept their offer because they do not know whether the buyers will be able to close in a timely manner or at all. On the other hand, professional real estate investors already know what they can or cannot afford, have their financing in place, and are ready to make an offer at a moment’s notice.
Investors’ experience evaluating and purchasing properties also allows them to feel more comfortable than consumers in making an offer on a short timeframe. Successful real estate investors who have their financing in place from companies such as Westpark Loans are able to act quickly and acquire the best real estate deals whenever they present themselves. In addition, private money loans typically close in as little as 48 hours, unlike traditional financing which can take 30-60 days.
Another tool of successful real estate investors is the “all cash” offer. While some investors do actually have all cash, many just claim to have it because they are using private money loans which can close in less than a week and have far fewer contingency requirements as conventional financing. By presenting an “all cash” offer, investors can offer less money to a seller than a conventional buyer, and still win the deal. The seller sells quickly and easily, and the buyer gets a nice discount on the purchase price.
Great deals don’t stay on the market long, especially when interest rates remain at historic lows. For example, houses in San Diego are only on the market for an average of 24 days before they sell, and 17.6 percent of those go for more than their asking price. In Los Angeles, a house is on the market for an average 32 days before selling, with 30 percent of the houses going for more than the seller asked. In Orange County, the average days on the market is 62 days. When dealing with all cash competing offers, it can be hard for traditional homebuyers to keep up with professional investors who already have proof of funds letters from private money lenders and can close with no contingencies in less than a week.
Take Advantage of Stricter Lending Guidelines
While the housing market has been recovering, lending guidelines have become stricter than they used to be. This leaves many consumers unable to qualify for a mortgage. When that happens, these individuals are stuck with little other choice than to rent a property until they are able to meet today’s strict lending requirements.
As an experienced real estate investor, this situation is extremely beneficial, because it increases the pool of potential tenants for your investment properties. You can take advantage of the situation by purchasing properties to accommodate the increased demand for rental properties. It also allows you to be more selective in choosing your tenants because the market is saturated with people who are limited to rental options.
Successful real estate investors secure great deals and offer those properties as rentals to individuals who aren’t in a position to purchase. While average income might be going up in an area, it often isn’t going up quickly enough to compensate for the increased housing prices. For example, the Chapman forecast reports that a potential Orange County homebuyer with a median family income will need to spend 37.2 percent of his or her earnings on mortgage payments in 2016, which is an increase from around 35 percent in 2015 and 26.4 percent in 2012. When a potential homebuyer’s income doesn’t meet the guidelines, that potential homebuyer is pushed out of the buying market for homes that he or she may want. Investors have dealt with the ins and outs of the market already, so they are able to justify the expenses that come with the property and snatch it up before the price increases further.
Capitalize on Inflation
Many real estate investors are able to increase their rental prices and still attract several prospective tenants for the property without a struggle. While the increased prices might take some individuals out of the equation, it could open up the possibilities for others. Because houses are selling quickly, there isn’t always the availability that some are looking for a new home. Purchasing a home is a major commitment, and some potential homebuyers prefer to rent while they continue to look for a home that meets their needs or while they save for a down payment on a larger home. These potential homebuyers represent an additional pool of potential renters for your investment property.
One of the greatest benefits to real estate investors is the ability to increase their cash flow and build a solid portfolio for themselves over time. As the housing market continues to recover, houses are projected to continue to increase in price. As the value of the house increases, property owners can raise the cost of rent to compensate for the difference. If an investor was generating $10,000 in rental income before on his or her portfolio, that could increase to $12,000 or $15,000 as a result of a changing real estate economy. This increased rental income comes as the investor’s cost of ownership remains the same, which results in greater profits.
By leveraging their experience and resources, securing their financing, taking advantage of stricter lending guidelines, and capitalizing on inflationary conditions, successful real estate investors are benefiting from the real estate recovery. There is no time like the present to purchase an investment property, and successful investors are proving that each and every day when they purchase new properties for their portfolio.
Scott Clift is a licensed real estate broker with Westpark Equity Group and the private lending division of Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specializes in providing real estate loans for real estate investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at 844-574-LOAN (5626) or by visiting westparkloans.com.