Real Estate Woes & Economic Turmoil Create Great Investment Opportunities

Great investment opportunities?! How can this be a good time to invest? Housing is in a steep decline...one of the largest declines we have seen since the Great Depression, the mortgage industry is in turmoil with record numbers of loans defaulting and going to foreclosure, the troubles in the mortgage industry are spreading to Wall Street resulting in a declining stock market and underperforming companies, the Dollar is falling, consumer spending (which is a major piece of the US economy) is declining, employment is also on the decline, the Fed seems to be slightly panicked and cutting interest rates to try to spur the economy and stop a recession/inflation, economic analysts cannot agree about the current state of the economy or the proper steps to take to improve it, talk of a recession and inflation are becoming more prevalent. How can this be good news for investing? It is difficult to believe that now is a good time to invest in anything when you focus on all of the negative economic news, but in reality, such drastic changes in such short periods of time are creating one of the best times to invest, and real estate is one of today's best investments. I know it can be difficult to believe, but it is true.

In order to gain a full perspective of the current investment climate, it is necessary to take a step back and analyze the ingredients that have combined to create the current economic and investment position. There are two catalysts that have sparked the current economic situation; the housing market and the credit crisis. For five to ten years, depending on the area of the country and who you talk to, the real estate market was booming. Home appreciation was at an all time high, and consumers (end users and investors) were taking full advantage of the opportunities these high price points offered. Prices were rising quickly, and real estate seemed like a great way to create a quick profit. Profits from home appreciation became added income for most consumers, and this added income brought with it a false sense of security. The great appreciation and large profits in the real estate industry, for consumers and all professions associated with real estate, fueled the US economy. The problem was that this sharp rise could not be sustained. Eventually a correction would be needed to level off the market. At the height of the real estate boom, the median price of a home was 45% higher than the median US income! Home prices exceeded the consumers' ability to purchase. The market was clearly out of line, and what we are witnessing today is the correction that is bringing many economic variables back in line with one another.

It was not only the high cost of housing that created the real estate decline, but also an oversupply of housing on the market. Consumers were not the only segment that saw an opportunity to profit from the housing boom; investors and builders also saw the opportunity to create large profits from the boom. The flood of real estate investors and builders into the market created an oversupply of product. More homes were being built then could be consumed by end users. Investors and builders helped drive prices up because they added to the demand in the market to purchase housing, but again, this growth could not be sustained. Eventually the growth would outpace itself. While home owners (end users) are emotionally and physically tied to their homes because they need a place to live, investors are not. When the correction began and home prices started to level off and decline and the oversupply of homes in various markets became evident, investors were the first ones to walk away from their investments. In addition, builders who had been steadily growing for years were now faced with an oversupply of inventory, and their reaction was to abandon projects or drastically reduce pricing. So as investors and builders aided the growth of the boom, they are also having a negative effect on the decline.

As if the combination of those variables was not enough, the credit environment in the US played a large role in the housing decline and our current economic position. The personal savings rate in the US is very low. The US currently has a per capita savings rate of 4%, which is less than half its average from 1970-1994. And as low as 4% seems, that 4% is up from 0% in the late 1990's! This demonstrates the affect that the increase in housing had on the US consumer. Consumers saw large profits from appreciating housing and adjusted their focus from saving to spending. This led to a period of high consumption, and since consumer spending is a large part of the US economy, the high consumption, and ultimately the appreciating housing market, fueled the economy.

At the same time consumers' focus shifted to spending, the mortgage industry began to adjust to take full advantage of the housing boom, and debt became easily accessible. During this real estate frenzy the mortgage industry saw the opportunity for large profits from a booming market and loosened its guidelines to qualify for mortgages to make home ownership more accessible to consumers, prolong the rise in prices, and ultimately create larger profits. In hindsight, the methods the mortgage industry adopted are very questionable, but hindsight is always 20/20 and very few complaints were heard until it was too late. The mortgage industry began to make heavy use of Adjustable Rate Mortgages (ARM's) and increased lending options to Subprime borrowers. ARM's are dangerous because low initial interest rates are replaced with higher interest rates within a few years. If a borrower is barely making payments at the initial rate, then increased rates will clearly be a problem. In addition, these ARM's were being offered to Subprime borrowers who are by definition less credit worthy and typically less savvy when it comes to finances. As a result of the housing boom and the readily available debt, US citizens felt comfortable taking on debt and spending the money they had. The focus on savings was replaced by a focus on spending and easily attainable debt. In a rising market that cannot be sustained, this is a very dangerous combination.

The combination of all of these variables has led to the economic corrections we are experiencing today. Housing prices rose to unsustainable levels, housing supply outpaced demand in many markets (Las Vegas, Florida, California, etc.), the mortgage industry adopted questionable policies which made debt easily attainable, and consumers shifted from saving to spending. The convergence of these variables has led to difficult times for the US economy. This market downturn has caused repercussions that are rippling through the entire US economy. As the real estate market declined, some investors and end users found themselves in negative equity positions on their homes, and to further aggravate the situation, ARM's began to adjust and home owners realized they could not afford their adjusted interest rates. Delinquencies, and ultimately foreclosures, have increased tremendously. Markets that were oversupplied have become further oversupplied and prices are forced to decline even further. The banking industry has been forced to take back real estate and take tremendous losses. These losses have flowed to Wall Street where hedge funds and mortgage backed securities invest heavily in mortgages, and investment capital has tightened up tremendously. As the lending industry adjusts to the changes, guidelines to qualify for loans have become increasingly strict, limiting the available credit. All of these economic systems are interconnected, and as debt becomes less accessible, consumption declines, which forces declines in earnings for the economy, which drops the value of stocks, and ultimately has an adverse affect on employment. The Federal Government is making attempts to help the situation by cutting interest rates to stimulate the economy, but a recession seems likely...if it has not begun already. I will not cover the topic of a recession here, but I will note that history tends to repeat itself, and taking note of the history of the housing industry demonstrates that when housing starts have declined in the past a recession has followed. Currently, housing starts have declined, so it may be wise to be mentally prepared for a recession.

It is not a pretty picture, but there are always good investments, and drastic changes bring with them great opportunities. The trick is finding those great opportunities. As investors, what are we to do in this turbulent time? A few options are:

* Keep your money in cash...save it in a bank, but make sure it is a bank that is not in trouble due to all of the current problems. This is not the best option because the return is low.,
* Invest in emerging markets around the world...India, China, the Gulf region,
* Invest in commodities such as oil, natural gas, or gold (By the way, gold is sky rocketing right now, but the question is where will it peak?),
* And finally, the investment strategy that I feel capitalizes on the current market conditions the most is real estate.
o Prices are low and still declining...great deals can be found. Areas that may have been too pricey in the past are now affordable.
o Builders/developers and banks have inventory that they must get rid of and are willing to make deep discounts.
o Interest rates are low and the Fed keeps pushing them lower.
o The standards to qualify for a loan are very tight, forcing people to rent instead of buy, which creates higher rental rates and cash flow on rental properties.

The key to investing in real estate in such a hectic time is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted four separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority.

Exclusive Partner Deal:
Blue Moon Capital - Turn-key Investment Model

A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!

The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.

Select Private Lending Investments:
Richmond, VA

Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $15-$45k, offer 12% annual return, and have solid execution plans and security. Get more return than CDs, Bonds and Mutual Funds!

American Homes

Greg Butler and Brian Rhodes are owners of American Homes, and both live in Richmond, Virginia. They have been in business investing in real estate for 4 years, and they have completed over 100 real estate transactions. Greg and Brian are known for their knowledge of the industry, their expertise in specific transactions, and overall business acumen. They have been invited to speak at several real estate investment clubs, as well as a real estate negotiating class at Virginia Commonwealth University.

On average, AH currently closes 1-2 "Pretty House" deals (typically subject-to transactions, then use a lease-option exit strategy) and 3-5 "Ugly House" deals (typically selling a house that needs repairs to another investor) a month. If you are interested in private lending opportunities, please contact PropertyVestors.

Exclusive Partner Deal:
Lee Mill Heights - Emerging Market - Manhattan, KS

Manhattan, KS, also known as "the Little Apple," is a little known market with great potential. Manhattan's population is going to double in the next four years! We have partnered with a successful and well-established builder in the Manhattan market who is offering 2-4 unit buildings in a new construction development. This is a great opportunity to purchase new construction rental property in an appreciating market with strong rental rates. These properties are sold to our group at a discount creating built-in equity and potential for monthly cash flow. In addition, a management company has already agreed to manage the property for 5% of monthly rents, while the industry standard is 7-10%. The management company is available and ready to fill your property. Please contact us for more information.

Preconstruction Syndicate Investments:
BridgePoint

A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. The addendums even protect you in a softening market!

BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.

Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.

PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.

Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.

For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.

About the Author

Real Estate Investment Group

Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.