Posted by David Butler on October 23, 2006 at 12:44:18:
In Reply to: Re: Owner Will Carry posted by Bob Smith on October 23, 2006 at 12:08:33:
Hello Bob,
Yep... I work with several real estate investors in Florida, including an LLC that I a am a member in, that is currently caught in the inevitable "market correction" that was due, after such an unjustifiable run-up in real estate prices over the past two years.
Fortunately, we are positioned somewhat well-enough to ride-out the current downdraft with good tenants leasing the several properties we have there.
A leading indicator in such instances is almost always an ever-increasing length in sales time cycles. You do mention prices are "dropping like a stone", but you aren't clear as to whether you making reference to listing prices, or sales prices.
In a typical downdrafting market, sellers tend to prefer enduring lengthier listing periods, as opposed to price reduction. Only distressed sellers (including those who HAVE to move for job, health, or other) bite the bullet in the early stages.
In such markets, only buyers who have to buy retail are buying, and generally, they do tend to be much more selective. As in all soft markets, investors are standing in the wings - and they are always selective - just moreso in down markets.
Many wait on the sidelines until they feel comfortable moving into the marketplace. We are facing a similar situation here in Colorado, and in particularly my county, which has been running about 3.5 times the national average for defaults on real estate mortgages this year.
Investors here still buy properties, but they are not yet "aggressively" pursuing deals. It is hard to purchase into a declining market, until you feel comfortable about where you believe it is headed. Wholesale buyers look to purchase SFR for 75% ITV in stable markets. What is a safe bet in buying, and then trying to sell back into a declining market, until you are comfortable that 75% of todays property value, will hold up over the next 12 months? Or 18 months? Or 24 months? That is the dilemma in market that has not yet shown a reasonably stable "correction point".
As we have discussed over the years, seller-financing, all by itself, is not a panacea for overcoming economic cycles, and/or in every instance. It is a tool - to be used when appropriate, and when seller has the ability to do so on an equity basis.
Right now... the answer to "How do you convince a buyer to buy? - either with or without owner financing - will be "Reduce the asking price substantially. Become the lowest asking price in the neighborhood, and in relation to other comparable homes readily available."
In conjunction with that, one CAN explore how to tailor seller-carryback financing into the mix, both to assist in obtaining a speedier sale - as well as in mitigating the effects of an otherwise drastic reduction in sales price.
Not the most popular answer, but ONE of the most practical - all else being equal. There are other creative solutions in the mix to some degree as well (such as we have done through leasing) depending on current demographic needs in each local marketplace. But hope this helps a bit. And take solace that for investors who are positioned well, down markets are where most fortunes are made in most investment arenas - including real estate. The trick is timing, and technique.
Wishing you much success, and...
Have Fun For A Living!
David P. Butler