Has Traditional Real Estate Investing Advice Been Turned On Its Head?

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Just five years ago, most Americans were into the ‘ownership society’, big time. It seemed that everyone was almost obliged to go for that dream home. The value was there and there was a lender on every corner, ready to make your American dream come true. At the time, conventional real estate investing advice was skewed towards home ownership at any cost.

Mortgage brokers who buys or sells for another in exchange for a commission, who knew a particular client was not qualified to assume such a large debt, gave the client real estate investing advice designed not so much towards the borrower’s benefit, as towards making a deal.

When home values were rising and interest rates were relatively low, it wasn’t hard to convince a buyer that his or her best move was to buy a home, no matter what. Today, we are all reaping the results of such misinformation.

While the $700 billion bailout reserve of money remain in limbo as to how the money will be distributed, and to whom and under what conditions, there are a lot of properties on the market, and as many homeowners facing foreclosure, and possibly, homelessness.

There’s no question but that it’s a buyer’s market. Given the current credit crunch, qualified buyers must either have an almost perfect credit score or tons of cash. If you’re prepared to pay cash for a property, the only real estate investing advice you need or, that matters, is to buy at the bottom.

However, the buyer who applies for a mortgage based on his excellent credit, still runs the risk of buying a property that loses value in the near future. The few remaining people, who can afford to take such a risk, are not relying on real estate investing advice to guide them. It’s a bottom line proposition.

Bank foreclosure (The legal proceedings initiated by a creditor to repossess the collateral for loan that is in default) properties are ripe territory for the cash-rich buyer’s objectives. Purchasing a home at bottom dollar affords many opportunities in a rental market. If you have the cash, there are many auctions where you can bid on a bank foreclosure property. Buy for a song and rent for a fortune. The cash rich buyer, is indeed, in the catbird seat. There’s not much need for real estate investing advice.

The ordinary home buyer, going through conventional channels, must now put at least 20% down and have excellent credit if that borrower hopes to secure the loan. These guidelines would have been sound real estate investing advice, five years ago. However, in these uncertain times, what if this borrower is laid off and cannot make his mortgage payments for three months?

Based on a home value of $100,000, he will lose his down of $20,000. What happens if the value of his home declines further? What happens if circumstance forces him to relocate and he’s unable to sell the home?

In a nutshell, unless you can pay cash, the current real estate market is fraught with risk, to the degree that the only sound real estate investing advice is to just stay out of this market until prices stabilize.

On the other hand, if no one is buying, how will home prices ever become stable enough for qualified buyers to take the plunge? Clearly, a better plan must be devised.

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