Why did the real estate market change so dramatically in 2007? Is it still a good idea to invest in real estate? When is the market going to turn around? Should I sell the properties I own before the prices drop again? Questions like these may have been on your mind recently. It’s important to understand why the real estate market crashed in 2007, so you can ride the wave of opportunity it created. Let us clarify that this is a chance to take advantage of opportunity, not people. This business needs more investors with heart, who are trustworthy and desire to earn a great living creating winning situations for all parties.

The biggest reason for so many foreclosures and bankruptcies has been subprime, interest-only, or exotic loans. These loans are very appealing. Many of them are adjustable-rate mortgages (ARMs) that allow homeowners to purchase a larger house with a smaller initial payment rate. The problem is that when the payment rate changes, many folks cannot afford the larger payment and end up in foreclosure. Also, many people were allowed to take on greater monthly payments than they could handle, especially if they later on ran into financial trouble.
Let’s take a look at several of these loans:

In the year 2000, only 19 percent of all new loans were exotic; in 2006 over 81 percent were. This tells us that most Americans own a property they can’t afford. In addition, the income versus debt ratio has taken a dramatic swing. In 2000:

Let’s take a look at what’s been happening. We think you’ll agree with us that these numbers are scary.
In 2006:

Almost half of all homeowners use more than half of their paychecks just to make their mortgage payments. This leaves very little left over for emergencies. In addition, when that payment increases due to an ARM rate hike, they can’t afford it, resulting in a foreclosure. Finally, in some areas of the country, homeowners have incurred a hike in property taxes, insurance rates, and association fees, making it even harder for them to afford the monthly payment.

What does this mean to investors? It means there are unlimited properties available right now if you know what to do with them. If you can be a landlord, buy as many properties as you can afford that will give you positive cash flow. With the changing market, buy low and plan to hold for the long haul.

If you don’t want to be a landlord, and if your local market is a buyer’s market (meaning there is more than six months’ worth of inventory available), offer incentives to get properties sold quickly: sell below market, offer no payments for 12 months, offer to pay all closing costs, offer new appliances, offer cash back at closing, and so on. Any property will sell if it is priced right, even in a buyer’s market. Remember, 90 percent of the marketing is done when you set the price on the home.

The bottom line is that there has never been a better time to be a real estate investor. Foreclosures have skyrocketed because of exotic loans, and banks are being forced to accept short-sales in order to get rid of properties. With 50 percent of loans maxed out, banks no longer have a choice. Investors who know how to make money with short-sales will do extremely well.