buyer’s market – Hassle-Free Cashflow Investing

Should I Buy In Today’s Seller’s Market?

Many of the local real estate markets in America are in a Seller’s market. If you want to determine if your real estate market of choice is a Buyer’s or Seller’s market CLICK HERE to read one of my most popular blog articles: “How to Predict Real Estate Prices”

I get this question a lot: “Should I Buy A Home In Today’s Seller’s Market?”

This is easy to answer from a purely theoretical perspective: NO!

Buy during buyer’s markets.
Sell during seller’s markets.
In between market cycles have your money invested in well-secured income-producing bonds like mortgage notes.

(Disclosure: Yes, I sell mortgage notes and I hope you buy lots of mortgage notes from my company. However, I hope you can read past this author bias because there are a lot of good lessons to glean from this article. Shameless plug: CLICK HERE to gain access to our current inventory of Hassle-Free Cashflow Mortgage Notes producing 10% annualized ROI.)

When I look at the vast number of buyers in today’s real estate market, I want to shout “WHERE WERE YOU FIVE YEARS AGO?” when it was the best buyer’s market of our lifetimes. You see it always happens this way… Smart investors buy when everyone is selling. When everyone is buying, dumb money rushes in and smart money sells. I’m not saying don’t buy right now. I’m saying BE SMART about buying. If you can still borrow at 5% and buy a property producing a +6% return… well, that sounds pretty smart to me. You see, even though real estate prices are relatively high right now compared to rents, money is still cheap (as a result of an abundance of Federal government stimulus). Interest rates are low which means it is a buyer’s market of debt. Smart investors are still borrowing all the money they can get their hands on at long term fixed interest rates. What do you do with that cheap money after you borrow it… well, BE SMART and make sure you are “positively arbitraged”.

If you aren’t really, really, really sure what “positive arbitrage” means, you must absolutely watch this free video series as soon as you’re doing reading this article: CLICK HERE

After you’re done with the above video series watch this free video training series on real estate investing math.
CLICK HERE

These two sets of free investor training videos could make you rich, or at the very least they could save you from making some very poor financial decisions.

OK class… everyone turn to your neighbor on the right and explain “positive arbitrage”. Getting the positive arbitrage formula right (CAP > interest rate) is the razor’s edge difference between financial freedom and bankruptcy. Positive arbitrage is the most important real estate lesson there is. Unfortunately, very few people teach it. If you don’t understand positive arbitrage well enough to teach it, please promise you will watch the above videos and not just gloss over this point.

The question “Should I Buy A Home In Today’s Seller’s Market?” is harder to answer from an owner occupant perspective because a primary residence is both a consumable item for pleasure and utility as well as a major financial investment.

As long as it is cheaper to rent than own, you are financially ahead to be a renter and go buy rental property in parts of the US where it is cheaper to own than rent (CLUE: this is why so many California investors are currently buying rental houses in Texas). When real estate prices are at a market cycle low, it could make financial sense to buy a primary residence even if the cost to own is higher than rent if you choose to speculate that when real estate prices return to market cycle norms you will make a bunch of equity that would be significantly greater than the cash flow “losses” you experienced from paying more to own than rent. The caveat of this formula is that once the market cycle booms, you need to sell your house, reinvest the equity, and go back to renting. In lieu of selling and going back to renting, some savvy property owners choose to harvest their market equity gains through a cash out refinance and reinvest the capital elsewhere. That is an excellent strategy as long as you have the positive arbitrage formula right (CAP > interest rate).

Of course, many times the decision to buy a primary residence is made on emotions rather than finances alone and that’s OK too. Ultimately, the money you earn is designed to bring you the things you want when you want them. So, if you can afford a house and you really want to own it, then market economics be damned! A house to live in is really a liability (not an asset) anyway. If you like the convenience of paying retail prices to get what you want when you want it, then who cares what part of the market cycle we’re in. A retail buyer will buy something because they want it and can afford it and that’s OK! I pay retail prices for food all the time. I know it is cheaper eating at home than eating out, but eating at a fine restaurant can be really, really fun. Sometimes it’s OK to pay retail prices for stuff you want when you want it. Just make sure you know you’re doing it on purpose. Dumb money buys the things they want because they want them and then justifies the expense as an investment. Expenses are fine; just realize that expenses and investments are very different things.

If it is cheaper to rent than own and you’re trying to make a financially intelligent decision, go find a rental situation you are happy in and use your cash to invest where the numbers make sense. If it is cheaper to rent than own and the house you want to buy is relatively fungible (e.g. not a unique one of a kind property that comes on the market once in a generation) then I would wait until the next buyer’s market to buy a house to live in. When the next buyer’s market comes along, it will be obvious to you and every one else because the words “foreclosure” and “short sale” will be on the evening news like it was 2009-2011 all over again.

If you have assets in the stock market, I would apply similar advice to the above. IMHO stocks are in a bubble. A few months ago, I published a prognosis to my newsletter subscribers that the stock market was at a top and ready to crash. The DJIA was 18,100 when I made that announcement. As you know, the market is currently down significantly from that point. Two weeks ago, I published to my subscribers that there is a lot more downward movement coming in the stock market. Today’s DJIA closed at 16,384… that’s a ~10% decline from the market peak just a few months. After reading my prognosis, a few of my investor clients cashed out of the stock market (at the top) and used their cash to buy well secured mortgage notes paying 10% interest. These clients achieved an ROI well over 20% annualized relative to where they would have been if they had left their assets in the stock market. Protecting yourself from loss is almost as good as earning a profit.
mortgage note to stock comparison chart

Of course, no one knows for sure where the market is headed so use your own judgement where things are going and how to prepare accordingly. Personally, I’m selling real estate in areas where I see a price bubble and moving this equity into income producing mortgage notes, farmland, and silver bullion. I am also still bullish on the Dallas-Fort Worth metro for acquiring income-producing, positively-arbitraged rental houses. If you can still borrow money cheaply and you’re looking to build long term equity and tax shelter, I would not be afraid of taking a long term investment position in the DFW rental housing market (HINT: CAP > interest rate). If you’re looking for investment opportunities in income producing Hassle-Free Cashflow Mortgage Notes or Dallas-Fort Worth (DFW) rental property, I am here to help you. Always remember, I offer a free 30 minute investment strategy consultation over the phone to help you navigate the potentially turbulent economic waters ahead.

CLICK HERE to schedule your no-cost investment strategy consultation with professional investor David Campbell
Best regards,

David Campbell
Real Estate Investing Strategist
866-931-9149 x1

If you’re thinking of making an investment in a Seller’s market, read this first…

We are living through interesting times. If you’re thinking about investing in real estate (or anything for that matter) in a Seller’s market, it’s essential to change your investing strategy to respond to different investment cycles.

Amateur investors learn an investing trick that worked once and try using that same trick over and over in all market cycles. That’s like planting corn in your garden every single month of the year. Some months you’ll have a bumper crop and other months you’ll wonder why there is no corn growing in your frost-covered garden. Your mutual fund sales person will call that dollar cost averaging; I call it silly.

There are times for buying and there are times for selling and times for just holding on. Having invested through the last real estate cycle of boom and bust and boom again, I am currently investing a lot more conservatively than I was in 2003-2007. Although real estate is local and there will always be good deals to be found, in today’s market good deals are definitely getting harder and harder to find. That’s because we are in a Seller’s market. In a Seller’s market, amateur investors overpay for properties because they don’t see any other alternative.

Investing 101 – buy as much as you can during a BUYER’S market. My home building company was very aggressive about purchasing heavily discounted vacant lots during the down market. Now that the housing market is booming, we are building houses with the help of contractors like Ideal Construction LLC and selling more houses than ever.

Vacant lot prices have quadrupled from the market bottom making it extraordinarily difficult to find vacant lots to replenish our inventory for future development.

Investing 202 – don’t overpay for assets during a SELLER’S market. Most home builders are currently ‘overpaying’ for the small supply of lots on the market, because they only know one trick – building houses. They have to pay the high market prices for lots because that is the raw ingredient that makes their business run. Many home builders will ‘overpay’ for lots even if that means their profit margins virtually disappear. Because they only know one trick, it means ‘overpay’ for their raw ingredient of lots or go out of business because they have no more lots to develop.

If you’re thinking about buying real estate in a Seller’s market, think long and hard about that decision. Although I don’t think we are at the peak of the current real estate or stock uptrend, I do think we are currently well above where the next market bottom will be for both real estate and stocks. Of course, if you’re buying real estate for long term cashflow and positive arbitrage, it could still make sense to buy today because interest rates are still incredibly low. You could say that real estate is in a Seller’s market, but interest rates are still in a Buyer’s market. If you are buying ‘over priced’ real estate with ‘under priced’ financing and you are positively arbitraged you hold on for a very long time, you’ll probably do very well. (Positive arbitrage is when your CAP rate exceeds your interest rate)

Investing 303 – When equities are overpriced, sell equities and buy bonds. In most of today’s US real estate markets, real estate is now overpriced. Click here to read my blog article “How To Predict Real Estate Prices” to determine whether your real estate market is currently under or over priced. DON’T MISS THIS PROFESSIONAL INVESTOR HINT: I am currently selling most of my real estate portfolio, using the cash to buy mortgage notes, and will sit on the sideline collecting mortgage interest until the equity market / home prices crash. I plan to buy back into the real estate market at the next cycle low. I am currently buying precious metals as their price continues to drop, as well as farmland and timberland as an ultra-conservative hedge against hyper-inflation and a potential currency collapse. Market cycles are very long. It can be a decade or more from market bottom to market top and back down again. Amateur investors do not think far enough into the future. They plant corn seeds in summer expecting to harvest their corn crop in the middle of winter. Sometimes it just makes common sense to stop planting and wait for the proper season for planting to come along.

Investing 404 – Not all bonds are created equal. Mortgage notes are my personal choice of bonds. The only thing I own in my IRA is mortgage notes. A mortgage note (bond) is a promise to pay secured by a piece of real estate. If the borrower pays me as agreed, I am happy because I have earned a 10% interest rate with no tenants, no toilets, and no vacancy. If my borrower pays late I earn late fees in addition to mortgage interest and my ROI goes even higher. If I buy a corporate or government bond and they don’t pay, I can pretty much write off that investment as a total loss. If I buy a real estate mortgage note (bond) and the borrower doesn’t pay as agreed, I will do the happy dance of joy because I get to foreclose upon the real estate for pennies on the dollar. By restricting my original loan amount to 75% of the property value, I should make a higher return on my money by foreclosing on the borrower’s equity rather than getting paid as agreed. That’s what I call a win-win! If the price of real estate drops and I have to foreclose, I at least have the borrower’s 25% down payment equity as protection from loss. I also have title insurance to help protect my investment from fraud and/or sloppy paperwork.

I am currently focused on buying income producing mortgage notes in Dallas, Fort Worth, and San Antonio Texas. These three cities have excellent population growth, economic diversity, very affordable and stable housing prices, and the foreclosure laws are extremely favorable to lenders. I’ve been buying and brokering mortgage notes in those cities for about five years and I’ve developed an extremely strong system in the process.

Using the strength of my investor network (the same network that brought you to be reading this blog post today), I have developed a steady supply of mortgage note investment opportunities. I promise you won’t find mortgage note investments like these anywhere else, because these notes are specifically created by my team to fit my personal investment philosophy.

All of our mortgage notes:

(1) are in the foreclosure friendly state of Texas and the rapidly growing markets of Dallas, Fort Worth, and San Antonio.

(2) are secured by recently renovated, highly affordable, single family homes in class B neighborhoods near major employment centers.

(3) have strong borrowers with less than 45% debt to income ratio.

(4) are 1st position deeds of trust at ~75% loan to value.

(5) have mortgage payment comparable to the cost of renting the same property. If it is the same monthly payment to rent or own, the borrower has little economic incentive to default. If you do foreclose on a non-performing note, you can resell the property for cash or rent out the foreclosed property and generate about the same net operating income as you were getting from your note.

(6) are supported by a conditional buy back guarantee from Hassle-Free Cashflow Investing giving our investors peace of mind and a secondary source of repayment for their mortgage investment.

(7) are professionally serviced by a licensed and bonded mortgage servicing company.

(8) are self-directed IRA friendly. Our team can handle all of the compliance paperwork for you.

(9) are turnkey and hassle-free.

(10) have lender title insurance in place issued by Chicago Title Company and paid for by the borrower.

(11) have zero investor closing costs associated with the purchase price.

(12) are able to be purchased at a nominal discount below the face value of the note – usually about 99 cents on the dollar and the 10% annualized ROI would be improved if the borrower paid their note off early.

(13) have complete due diligence files available on the property, the loan, and borrower.

(14) are professionally underwritten by a licensed and insured residential mortgage loan originator (RLMO) to be “Frank Dodd compliant”.

(15) are secured by houses who have a minimum value of $75,000.

(16) are fully amortized over 15 years but can be resold for the amount of the unpaid balance at any time.

(17) have a bite sized purchase price between $60,000 – $120,000

If you would like to purchase high-yielding real estate notes secured by 1st position deeds of trust recorded against quality real estate in Dallas-Fort Worth, TX send us an email – David@HassleFreeCashflowInvesting.com or call 866-931-9149 ext 1

To request general information about mortgage note investing, you can read my free white paper – “CLICK HERE for Secrets of Hassle-Free Cashflow Lending” as well as watch this video “CLICK HERE for Investing and Tax Strategies for Mortgage Note Investors” and this video “CLICK HERE for Nuts and Bolts of Being a Private Lender.”