What Is An Investor?

"We are living in a very different world."

I have heard this statement more times than I can count over the last month or two.  I recently had a buyer client make this comment after succesfully negotiating a price on a property, and later demanding that the price be lowered because of the economy shift and his softened portfolio.

This brings me to the question:  What is an Investor? Or better yet, Where are the investors?  If Investment property prices are falling, why are investors remaining on the fence about purchasing real estate?  After all, it's a buyer market, right?

In my market, (NY), there are more solid opportunities for the small investors than I have seen in ten years. You can actually purchase a nice 2 or 3 family home and have a monthly residual income from it using very basic investment strategies.  Imagine that!

A few thoughts;

It's a great time to be a landlord.  Unfortunately, the mortgage fallout has taken a toll on many homeowners, forcing many to uproot from their homes and fall back to renting. This dynamic will continue for a couple of years, maybe more.  An increased demand for rental properties will result in a lower supply.  This makes your clients rental property more valuable on a month to month basis.  it's simple-they can collect more rent from a more qualified tenant.

If your investment client wants to wait for prices to drop even lower, it is a wasted strategy.  Prices will likely fall a bit more in the first half of '09, but it will easily be offset by increased interest rates.  I have had a few buyer clients who are ready, willing, but not able to purchase.  Remember at the beginning of the BLOG when I mentioned that we're living in a very different world?  The mortgage industry is in a tailspin when it comes to dealing with the investment property market.  Make a call to your mortgage contacts and inquire about what type of programs exist for the small investor.  Be prepared for a minimum of 20% injection, 7 1/4% interest rates and possibly a point or two.  One of my close mortgage friends boasted that he could find a program with 10% down, but it requires a 780 score, 2 1/2 points and 6 months of reserves for the investment and his primary residence!  The idea of waiting is senseless.  This is the way it will be throughout all of '09, and rates will go up for the investor in the first 2 quarters of the year.

Don't be afraid to ask your buyer if he is capitalized.  Education is the key.  Even the most seasoned small investor is unaware of the changing mortgage market.  "After all, this money was readily and easily available two years ago when I bought my last property" Wrong again.  (Remember the different word thing?).

Did your buyer read "THE BOOKS" or watch " The No Money Down" Infomercials?   Once again, education is the key.  Garbage in- Garbage out.  Without injection cash and reserves, your buyer may be just a guy who wants to buy a building.  But this isn't always bad.  The savvy agent who recognizes that this buyer has a strong desire to purchase may want  to hibernate and groom this client for the future. Put this buyer in the hands of your most trusted mortgage professional.  This same desire may turn into multiple transactions for you !

Are your Investment Property Sellers realistic?  It took a few years, but the new paint and windows are terrific when it comes to the marketing of the property, it all boils down to one thing. Show me the money!  Or better yet, "Show me the numbers"  Nobody likes a pretty property more than me, but the sharp investor is concerned about MONEY! The END!  The seller will be forced to place himself in the shoes of the buyer, like it or not.  (Different World thing again)  Sad, but if the seller can't adapt to this change, I'll email you a contract withdrawal for the listing.  No thanks are necessary.

I'll confess.  I have had some struggles in adapting to these issues myself.  I have a fairly heavy book of buisness of Investment Property clients that I've been wrestling with myself. But it's great to see that the investor will be returning to traditional 'buy and hold'  strategies, and will be a responsible borrower as well. It might take a year to wash out, but it'll definitely worth the wait.

One more thought:  This probably isn't the best time to work on building a book of business of investment property customers, but I recently went to a GRI class where the instructor made a great suggestion. What if you offered your market an analysis of their properties base solely on income, expense, debt service and local capitalization rates?  A serious investor will never throw that letter away.  It may hang around for a while-but who do you think he'll call when he's ready to sell?

List 'em and sell 'em!