The following is my viewpoint based on my experience as a business executive. I am currently an active real estate investor and business turnaround/ real estate investment coach. For more information on my coaching program please Click Here
I look forward to your comments.
“Housing: In his first big speech as Fannie Mae and Freddie Mac’s new regulator, Mel Watt did everything but solicit subprime loans for the mortgage giants. His easy credit crusade is off and running.”
Read More At Investor’s Business Daily: http://news.investors.com/ibd-editorials/051514-701086-mel-watt-strategic-plan-to-ease-fannie-freddie-credit-rules.htm#ixzz31ps7r8G4
A brief review – sub prime lending led to the collapse of the real estate market. Easy credit meant the prices for residential real estate in particular were driven up. Property values were inflated because of the demand that was created by easy credit. Condos, townhomes and single family homes were over built in anticipation the growth would not stop. When people could no longer afford the payments the bubble burst. There is more to it but that illustration is one most can understand.
Once the collapse happened there were huge opportunities to acquire property at 20-50% of the original value.
Fast forward -One would think the lessons were learned. However, it looks like Mel Watts is opening the faucet again to easy credit. What is the strategy of today’s real estate investor with the information another housing bubble and bust is in the making?
Did the hedge funds that bought tons of residential inventory in the past couple of years know about this policy shift or maybe they have been lobbying for the policy shift because they stand to make a ton of money. They will make a ton of money from the increasing home prices that result from an ease of credit and a lack of inventory. Note this is speculation as I have no personal knowledge of them doing that. However, I find it interesting that big money typically has not invested in residential real estate.
Is it possible the banks are sitting on non performing mortgages in excess of 2 million homes because they know cheap credit is coming and demand for homes will increase. The law of supply and demand delivers higher prices when demand out paces supply.
I Am Highly Suspicious of These Actions and Trends. However, Let’s Look At What I Am Doing and What I Am Advising My Clients
1. Adjust the buying profit formula to reflect rising prices – normally we do not factor appreciation but now we will. Note funding partners will not be adjusting their formula just yet. That is OK. For buy and holds we will reduce our near term profit for a bigger gain longer term.
2. Watch all trends carefully. Those who were heavily invested in 2007 and got out were very successful. What will be the cycle? I don’t have crystal ball. However, I would say at least a 5 year uptick. What do you think?
What Is Likely To Happen In The Commercial Sector?
Currently we expect little changes as interest rates continue to be favorable. Fannie Mae and Freddie Mac generally do not effect the lending formulas for commercial buildings. However, we will be carefully monitoring rental market trends for properties we are evaluating. Our view is distressed building in a good area will continue to be good investments.
My Schedule Has Room For 5-8 Real Estate Investor Coaching Clients and 2-3 Business Consulting Clients depending on the size of the business. Click Here for more information
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Steve Pohlit, Managing Partner
Steve Pohlit International LLC