The Housing Market – run for cover or buy like mad?
by James Miller
We are scared. That’s surely no secret, but what can we do about it?
I have a technique I use when I feel myself becoming afraid or apprehensive about any situation. It has served me well and I find it somewhat elegant in it’s simplicity.
Whenever I am faced with something that I either don’t know how to handle or is confusing me, I ask myself the following question:
“What is it about this situation that I don’t yet know?”
Then as a follow up I ask
“What can I do about it?”
It seems pretty simple, maybe too obvious for some to believe, but when I ask this question aloud, my mind always seems to answer. When I get that answer it allows me to take action to to relieve that fear.
So in this market, we can ask ourselves “What is it, that we don’t know, that is making us afraid?”.
What immediately pops into my head is that we have no idea whether housing prices are going to go any lower.
Now what can we do about it?
Well… nothing really.
Nothing to change the situation that is, but you can position yourself to avoid the pain of falling home prices. What this means to me is that I am not going to go out and sign on the dotted line for any new loans any time soon. There are, however, ways to buy property with little or no money down and no personal guarantees. If you can do that then you have an automatic safety net built in.
In fact, wouldn’t it make sense to so that all the time anyway?
The other side of this is that the market very well may be at a relative bottom and if it is, wouldn’t this be a good time to start buying property?
On the opposite side of fear is greed. In market terms fear is fast and greed is slow. And fear always trumps greed. This means that it will likely take a while for this market to turn around, and when it does the climb will be slow.
Now is the time to be talking to sellers about buying their property using seller financing terms. Taking over a property “Subject to” the existing mortgage is one of my favorites, followed closely by the seller holding a first, land contracts, and lease option purchases. None of these should require you to personally guarantee the debt.
If you can couple these types of purchases with the possible future potential for the market to turn around, you can have no credit risk with a significant upside potential.
If you can get good at negotiating with sellers to be able put very little money into the properties you are buying – or be able to take money out of them as you buy- you will have very little financial risk as well.
With all of those pieces coming together, the fear can be eliminated.
Compare seller financed deals with the current very common practice of buying foreclosures from banks.
Foreclosure purchases can often have strict down payment criteria and still require you to personally guarantee the debt. The two things you want to avoid if you are afraid of the housing market once again pulling the rug out from under you.
Yes, there can be some deals in forecloseures, but when you aren’t sure where the bottom of the market is, do you really know that are getting a good deal, or is it still just speculation with a different face?