Saturday, August 20, 2011

Apartment Living Is Losing Steam to Single Family Home Rentals

There is an absolute flood of former homeowners choosing to rent single family homes over apartments in today's high foreclosure climate. For those of you that follow my blog, this is nothing new, but the media is finally catching on to tenant migration from apartment living to renting homes in residential communities throughout the nation. This presents a "Win, Win" opportunity for both Investors/Landlords and tenants.

Foreclosures are primarily centered around single family residences (SFRs) and not apartment buildings. Real estate investors like myself, have almost no inventory of apartment buildings to choose from, which leaves SFRs as the primary investment category in today's market. This isn't a bad thing, however, since more and more victims of the housing correction are turning to like-kind housing. In other words, wanting to live in a home comparable to the size, neighborhood, school district, and city they once lived in before losing their home to foreclosure.

Our government is planning on getting into the landlord business along side investors. There are plans to convert the huge inventory of Fannie Mae and Freddie Mac foreclosures into rentals. I don't believe our government can run a business better than the private sector, but there will be the added benefit of reducing the current inventory of homes for sale thus allowing property values to rise if they do indeed move forward with these plans. Reduced inventory equates to increased demand which is a good thing for the housing market.

To take it one step further, I've been offering a highly customized Rent To Own contract on all my rentals. Rent To Own contracts offer a beneficial arrangement for both Landlord and Tenant. The tenant gets the opportunity to buy down the principal month to month like a traditional mortgage without having to have a large down payment, if one at all, or the high FICO score that banks are looking for these days. With Rent To Own, the owner remains on title until he is bought out, which prevents the owner from having to file a foreclosure against the tenant if they don't make their payments on time. A simple eviction is all that's needed to regain control over the property. These types of contracts come with a fixed sales price, interest rate (for purposes of figuring out amortization principal), and a set term (usually 30 years). The sale price and interest rates provide a great return on the investment for the owner, and the tenant can buy down the house and eventually take title without all the red tape that banks and their underwriting staff put them through. This arrangement has been quite successful for me and the tenants I've contracted with.

Investors need to be creative these days to separate themselves from the norm. When tenants see value in your offerings, vacancy periods are minimized if not eliminated. Former homeowners are looking for a whole lot more than apartment living for their families. Renting SFRs is where the trend is these days. Rent To Own contracts, in my opinion, are the future.


Thursday, April 7, 2011

A Very Valuable Investing Strategy For The New Investor Or The Investor That Has Failed

Investors, like me, invest for one purpose only - TO MAKE MONEY! Arguably, some methods of investing are better than others. In the stock market, you have the Bulls (optimistic about stocks going up in value) and the Bears (pessimistic about stocks going up in value). Bulls are likely to buy stocks with the hope that the price per share will increase over time, while Bears are likely to short stocks (a method of making money when the price per share of a stock goes down). In real estate, the goal is to buy low and sell high...pretty simple concept, but timing is everything if you want to be successful. Not all investors make money. As a matter of fact, many investors lose everything, because their method of investing is not well thought out and has no track record of success. I'm writing this article to share my method of investing with those of you that want to better your odds when it comes to investing in real estate or the stock market.

I am a Contrarian investor in both the real estate market and the stock market. A Contrarian investor is an investor who attempts to profit from an investment in a way that differs from the majority. When everyone is buying and creating a "Top" in a market, a Contrarian will sell into the making of that market top before it collapses. When everyone is selling and creating a "Bottom" in a market, a Contrarian will buy at the bottom, knowing that the investment is undervalued. A successful Contrarian investor buys and sells at the extremes of the pendulum swing. This requires patience and a solid understanding of the psychology of markets, be it real estate or stocks. The knowledge behind crowd behavior psychology is one of the most useful tools a Contrarian can use to make big profits. Crowds tend to invest in investments that have a confirmed positive bias. By the time an investment is perceived as being a good bet by the masses, the valuation of that investment is typically quite high or what we call "Top heavy". In other words, the majority of the appreciation is already baked into the investment by the time the crowd thinks it's a good time to invest in it. It's because of this novice investing, many lose everything when the investment runs out of steam and begins to lose value in a relatively short period of time. Contrarian investors, like myself, avoid these investment traps and focus on very undervalued investments that the masses are ignoring. As the crowd begins to rotate out of their bad investments and look for other sectors that have more appreciation potential, the Contrarian investor is already well positioned to enjoy the appreciation ride the masses will now bring to their investment. When the investment appears to show signs of high valuation, Contrarians will sell their investments (stocks or real estate) to a willing crowd of buyers who have come too late to the game, only to be left holding the bag of a soon to be overvalued liability.

Look for investments that have good fundamentals but are undervalued due to unsustainable trends by the masses. If you do this, and you have patience, you will be setting yourself up for great profits as the cycle unwinds in your favor. Contrarian investing is at the root of my success as an investor. I've made money in both up and down markets by using this strategy. There are many books and in-depth articles on the subject of contrarian investing. Please consider this type of strategy if you want to improve your investing acumen.

Happy investing!