Chapter 6: Now What - Denver and Colorado Investors Can Beat the Cartel!
For fix and flip investors, who take virtually unsalable homes, make them new again for consumers and sell them, the last couple of years has presented a challenging environment. The cartel is withholding properties from the market (hoarding!) and declining to sell them at prices that allow them to be properly rehabilitated for a potential homeowner to purchase.
For rental investors, the market is also difficult. While rental demand is very strong, financing is a challenge and suitable homes are slow to come on the market. The Cartel is taking bids on blocks of homes in a handful of states (not Colorado) and selling them to Hedge Funds and other BIG MONEY with the idea that they can’t resell them for a predetermined number of years, but will rent them out (this is a way to sell homes skirting the local market and reduce the number of homes available for sale). Additionally, smart investors see the limited appreciation potential for years in the future and seek their returns through cash income today, relying very little on potential appreciation. (See our discussion of the Big Bank/Federal Government Cartel above.) This means they need to buy the homes for less today.
For potential home buyers, you have options, if you can qualify for a government loan (remember, they are ALL government loans) or can pay cash, you have lot’s of choices, don’t overpay and don’t assume your home will make you wealthy. A home is for raising a family and having an enjoyable, personal place to live over the long haul. Kohlberg Kravis Roberts and Company’s Economists forecast a flat market (nationwide) through 2014 with only modest appreciation thereafter.
Watch the Cartel
Margins are tight and the risks remain huge, but we do know that the Big Banks and Federal Government “Cartel” are maniacally committed to maintaining market values. So, there is downside market risk, but the Cartel will work to minimize it by reducing the supply of homes and holding tight to prices on those currently listed for sale.
Stick to Your Guns and Do NOT Overpay, just to have something to do!
For both types of investors the message is clear. Stick to your price. Overpaying comes right out of your pocket and you are very unlikely to be bailed out by price appreciation beyond the value added of your hard work. It’s also critical for you to realistically assess the cost of repairs and fix up…paying too much and overspending on repairs/fix up has sunk more investors than you can count.
Keep watching the Denver and other Colorado markets and trends. You are on the front lines and may be able to detect subtle shifts in the market before they become apparent to number crunchers and/or show up in the Dinosaur (Denver) Post. The Dinosaur generally reports on old news, myths and photo ops for whiners and losers. Don’t waste your time looking for insights in the Dinosaur Post.
Much of my insight comes from our borrowers and our daily contact with investors across the marketplace. Sometimes our insight will embolden one of our investors who borrows private funds from us to make a bold profitable move!
Check out my other Blog Posts and Free Reports on my Web site for additional ideas about the market. Read more tomorrow on this fascinating subject!
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