Ep 88 – Unique Opportunities Arising from a Housing “Slowdown”

You can’t help but hear the news that rising mortgage rates are leading to mortgage application slowdowns and home appreciation is slowing. 

It might sound like doom and gloom, but when you look at it from the point of view of an investor, it’s actually fantastic to hear.

Adam Schroeder explains why you should be jumping for joy at the turn of events in the real estate market.

Articles:
Core LogicU.S. Home Price Insights – Published July 5th, 2022


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Current Hotlist Properties


Transcript:

Adam 

Hey, Rent To Retires, it’s Adam Schroeder here with another episode. And today I want to get into some of the benefits of a real estate market that is slowing down. So, if you’ve been if you haven’t been hiding under a rock, you know that mortgage rates have increased significantly recently, new mortgage applications have slowed down refinances have slowed down. And home buying in general has slowed down a little bit. Obviously, it’s still hot and heavy out there, there’s still homes are selling for 100% of their value. You know, they may not just be getting run up and bidding wars. And like they have been in the past. But you know, it’s slowed down a little bit out there. And I’m going to posit to you that as an investor, this is actually a good opportunity for you when things slow down. It makes for a better opportunity for several reasons, but one of them I don’t think many people are thinking about.

Let’s look at some of those reasons. Well, first off, whenever buying slows down, it actually gives you a second to run some numbers for a little bit longer, before you go into a deal. So, you can take a minute, you know, run through your due diligence a little bit more, you can do your due diligence before you go into a deal, as opposed to after you’ve signed the contract. And moving forward with that. That is a big perk. But if you look at our website right now and compare it to what it looked like, three, four or five months ago, you will see that the inventory and markets have drastically changed. And why is that? It’s because things have slowed down. When things slow down. People need new places to sell their properties because they’re still building homes, they’re still rehabbing homes. The problem now is they need to find buyers aren’t flocking to them like they’ve had to before. So now all of these people that we’ve been in contact with before, who didn’t need help selling their inventory.

All of these people who’ve been around suddenly, they need somebody to buy their properties, they need motivated buyers. And so, we’re able to get into markets that we haven’t been able to get into before and get inventory that we haven’t been able to get before. If you look right now, you will see that there are turnkey rehabs in Houston, Texas, yes, you know, you might have to put 25% down to make the deal make good financial sense right now. But that’s because you know, Houston, rents are going to be increasing, but their prices have increased significantly over the past one to two years. So, rents are still playing catch up there. But, you know, if you’d asked me six months ago, do we have anything in Texas? The answer would have been unequivocally No, we don’t. Because there is nothing there for us. You know, no teams have needed us.

If you look right now, you’ll see that we have new construction in Florida up in the panhandle. And we’ve had properties available in Tampa, in Port Richey, and holiday places where inventory wasn’t around before. So, these opportunities come around. And when you look at this and you see the market that it’s in, I’m going to posit to you, you cannot just discount it because your return is lower year one. You know, I’ve talked before about the need to look out past year one, and C two, three and four. Well, I’m going to tell you right here right now, there’s a lot of things in these markets that make them excellent for long term growth and long-term viability as an investment property, but year one, the numbers don’t look pretty year one, it’s going to be a little bit of a waiting game, waiting for the rents to rise, waiting for everything to equalize, you know, but you’re in a market that you wouldn’t have been able to get into if there wasn’t a slowdown.

So now that the slowdown is here, don’t give up on the need on the ability that you have to diversify into markets you couldn’t touch before. Get in there. Thank the homebuyers who aren’t coming there right now, and take advantage of that. I mean, this is an opportunity that hasn’t been around much recently, with homes being as in demand as they have been. People have not needed another outlet to sell their homes as much. And so, when the opportunity arises, take it, you know, look at the place and be like, look, this is a long-term growth area, rents are going to go up, prices are going to go up, the economy is good, and the economy is solid, it’s going to put me farther ahead, in my scaling later, when I can either sell it, or refinance and pull my money out, it’s going to be a good long-term investment. So, we have to look at the markets we’re getting into, we have to thank our lucky stars that there is a slowdown currently.

And we have to take advantage of that, you know, we talked before about buying when there’s blood in the streets, well, you should also buy whenever homes come onto the street. And when homes come on to the street like this, don’t just look at him and say, who wants to invest? You know, Tampa is a great market, but cash flow is low, so I’m going to ignore it. Well, you got to look out farther, you know, what’s your investment going to look like in 234 or five years, because we’re not just buying it for this year. You know, we’re in this for the long haul we are buy and hold investors. So, look at that, and realize the opportunity is here for you to take advantage of new markets, that I don’t know how long they’ll be around. To be completely honest. I don’t. I know that right now we have teams, I know right? Now those teams are bringing us inventory, and you have the opportunity to take advantage of it.

I don’t know how much longer there’ll be around, because at some point, things will change. And, you know, the inventory will be bought up. And the numbers may not make as much sense anymore. And so, they might not be around. But while they’re here, take advantage. Take advantage of the opportunities that are laid out in front of you. People talk about how prices can’t keep running up, how mortgage rates are going to kill everything. Prices are going to go down demands going to soften this, that and the other CoreLogic actually did a study that was released just on the fifth, actually. And they said that they were looking back and they said in May in the United States home prices had increased 20.2% year over year. But come next May. They’re estimating that it’s going to be only 5%. Well, guess what, people? That is still great news.

If we’re looking at an environment with rising rates, where rates have doubled, if not more, this year alone, and we’re still talking them and we’re talking about being in a recession, potentially, which by the time you know, you’re in a recession, you’re out of the recession for the most part. But if you look at the situation, right now, and if you tell me in a year from now, we’re going to be at least 5% up. That’s fantastic. A 5% appreciation, I will take that every single year and twice on a leap year. You know, it’s a good thing to have here. So, all of these concerns that people have about the housing market, even the negative things people are saying are still great opportunities.

You know, whenever you look at what’s happened year over year, we talked before about like the Tampa market. Well, we have homes around the Tampa area, Tampa grew 33.4% year over year. That’s incredible. If you can get into that market and make it cashflow, fantastic, if you don’t think rents are going to skyrocket in the Tampa area because of that fact, you’re wrong. First off, but you just have to get in and wait. That’s the thing is you just have to get in and wait for it to really take advantage and for your portfolio to just do what it does. let time be your friend. You know, we talked about inventory about slowdowns and applications and all of that. Let’s get some actual numbers on this housing inventory in June was almost 20% higher than it was a year ago. But overall, even with that 20% Bump. It’s still about half of what it was pre COVID. So, we talked about oh more homes are coming on the market. More homes this more homes that well guess what, congratulations.

Year over year right now it’s going to be still messed up, because we’re still comparing it to where we were during COVID We’re not talking about typical pre COVID things that are happening. You know, if you look at the inventory where we are now, versus where we were, it’s still very much in a situation where we need more inventory. Worst case scenario, you know, we were at like one, one and a half months of inventory. And most of the markets in the US, a balanced market is six months of inventory. That is a lot of inventory to get into, just to reach the balance level of inventory, let alone getting into a buyer’s market necessarily. In this environment, maybe it means you wait an extra couple of days, for the home to sell. Big whoop, I can tell you right now, I’ve listed a home for sale one of my investment properties so that I can utilize the equity in it, we got a full price offer, we just had to wait six days for it instead of initially, we got a full price plus 5000.

Unfortunately, the financing fell out. But we got that in like three days. So now we had to wait, you know, six days to get a full price offer once that one fell through. So oh, the humanity, right? Oh, the humanity, just look at the price points we’re in, look at the inventory levels compared to, you know, historical levels and know that we are still in a fantastic situation. For real estate investing, we are still in a time where you can come in, get these properties, cash flow day one, let time be on your side, like we’ve said multiple times, get the cash flow, still get the appreciation, even if it’s quote unquote, only 5%. You look at the brochures we have on our website, guess what those are run around 4% appreciation. So even then 5% Better than that, right? So, your returns are going to be even better than what we’re expecting them to be. So that’s fantastic news.

That’s absolutely fantastic news to hear. So, you hear all the negatives out there. And I will not dispute that applications have slowed. Inventory is rising. Mortgage rates are higher than they were. But it is still creating an opportunity for you that you have to take advantage of. So, head on over to rent to retirement.com. You can see the inventory that we have there. You can schedule a call with one of the investment strategists like myself to talk about your portfolio, and how we can help you get where you want to be in your investing journey. That’s at rent to retirement.com. If you have any questions, reach out to me podcast at rent to retirement.com. That’s podcast at rent to retirement.com. Don’t forget to leave us a review on whatever podcast platform you use. we’d greatly appreciate it. Don’t forget to subscribe to our podcast, and I’ll talk to you on the next episode.

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