Targeting 100 Plus Market-Part 2

Editor's Note-I promised this article on Sunday, but things have been a bit hectic.

According to Zip Realty, there are over 668 homes for sale in my zip code. Out of those 688, Redfin says there are roughly 100 that have been listed for over 100 days. Things aren't moving as fast as they used to. My next door neighbor who has listed his home for over 100 days, has just dropped the price from $599,000 to $500,000. They want to move out of state and they are desperate to sell.

Things are getting bad around here.

Some of the bubble guys are claiming that all hell is going to break loose. They claim that home prices are going to drop nearly 40% in some areas. And they may be right. Making money in real estate when home prices are going up is easy. I did it for nearly ten years now. In those ten years, I think I learned a thing or two.

The real test starts now.

Targeting the REO's

The key here is positioning. My offers are going to be substantially lower that what the listing price may show. The reasons are many, but my offer will have to take into consideration, holding costs,selling costs, days-on-market, price-to-rent ratios, plus my profit. Granted some will get turned down, but the bank's loss can not become my loss as well.

Targeting the Lease Option Market

Among the "100 Club" listings there are some with low loan-to-value. I don't want to market to those with large loans, because I will be certain to fail if I do. Currently homes are leasing anywhere from $2000-$2400 per month. It would be asinine of me to think that I can option a home for $4000 a month and then turn around go a lease it for more than that.

The median income in my area is roughly $70,000 and $2000 is just about the range that the rental market will support. I also need to guard against a severe market reduction in home prices. If I option a property for $500,000 and then a year later when I choose to exercise the option, the home is only worth $450,000, then what have I accomplished?

Nothing.

Not only do I set up my buyer for failure, but I also ruin a potential great relationship with real estate agent.

Targeting the Realtors

Though my goal is to keep investing in this down market, my ultimate goal is to build a network of real estate agents who will feed me quality leads. About 95% of all real estate transactions go through real estate agents, so it makes sense to go where the big fish are. The biggest hurdle I have to overcome is to train them to think like I do. They will have to understand that most transactions will not meet my investment criteria. That will be the easy part. The hard part will be to find quality real estate agents who know how to position my offers and have strong negotiation skill. Unlike most sellers, I have no problem paying 6% to 7% commission, but the only way I could do that is to get a great deal on the buying end.