Thursday, December 3, 2009

There Are "Stupid" Deals Right Now In Real Estate

Steve Sjuggerud talks about the ridiculous deals that can be made in real estate right now before the market bounces. The unprecedented bust can mean tremendous gains if you can find and close on the deals that are out there for far below market price. See the following post from Daily Wealth.

U.S. home prices are down 70% in terms of gold.

Everything else on the planet is up: gold, stocks, bonds, emerging markets, commodities – you name it. But home prices are down... And I'm buying. Here's why:
  • U.S. homes are more affordable than ever. Right here, right now.
  • You can get truly "stupid" deals right now. I'm not sure how long they'll last.

I'll show you affordability first. Then we'll quickly get to the "stupid" deals...

People buy homes based on their mortgage payments. They ask, "How much can I afford per month?" So housing "affordability" is a matter of three things: 1) home price, 2) mortgage rate, and 3) family income.

Home prices have crashed, and mortgage rates are at record lows. But family incomes have held up... So falling home prices plus ultra-low mortgage rates mean homes are more affordable than ever. Take a look...

Homes Have Never Been More Affordable

The last time home prices were even close to this affordable was the early 1970s. And you can see, home prices nationwide soared from those cheap levels. But affordability has NEVER been as great as it is right this minute!

Sure it feels bad out there in real estate. But that's the feeling you need to get some truly "stupid" deals...

Let's use the last big bubble as our guide... the dot-com bubble of 2000. Take a look at the chart. The story is simple...

Bubble, Bust, Bounce... Then Grind

After the Nasdaq Bust, the biggest gains were made in the Bounce... from October 2002 to January 2004. In just 15 months, the Nasdaq nearly doubled.

Much bigger gains are possible in real estate.

You can make bigger gains because, unlike the stock market, you CAN find absolutely stupid deals in real estate. All real estate is local... and each piece of property is unique. That's not true for, say, shares of Apple. And you would never have the chance to buy shares of Apple way below the market price. But the seller of a unique property may be desperate and ready to sell at a huge discount.

Right now, the same sequence is happening in real estate as in the dot-com days: Bubble, Bust, Bounce, and then the Grind.

We're Seeing the Same Thing in Real Estate

I believe we're in the end of the Bust and the beginning of the Bounce. This is where the deals will happen. Finding a deal now will be your only legitimate shot at making triple-digit gains in residential real estate over the next few years.

But you have to do it right. You're not going to make triple-digit profits buying at market price and selling at market price. You must buy WAY BELOW market price.

I expect the real estate Bounce will be meek. So you CANNOT count on price appreciation to make you your money. Instead, you have to buy at the first red star – cheap, cheap, cheap – and sell at the next red star – which is STILL below market price.

Personally, I have made lots of offers... I was on the courthouse steps just yesterday to bid on a property. I've bought some property at ridiculous prices, so I can personally attest that there are extraordinary opportunities out there.

What I'm talking about takes a lot of work. And I've done a bunch of homework and still not gotten a property. That's OK. Be stingy... only be willing to pay less than 50% of market price. (You can use your county property appraiser's website to see the tax-assessed value of a property.)

Look, homes are more affordable than ever. But it feels bad out there. This creates your opportunity. It's deal time in real estate. Get started!

This post has been republished from Steve Sjuggerud's blog, Daily Wealth.

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