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How to Find Deals in a Changing Market.

An old Chinese proverb states that “The best time to plant a tree was 20 years ago. The second-best time is now.” Because it is a proverb it implies so much more than just its literal meaning about trees. It is true about so many things in life – especially investing in real estate. If you take that as gospel then then this statement should be true too, “The best time to invest in real estate was 20 years ago. The second-best time is now.” While most will agree, in a changing market many can and will challenge that reasoning.

Like the seasons, all markets change. Sometimes the markets are hot, sometimes they are cold and sometimes they are “just right” but whatever season (referred to as market cycles in real estate) we are in, one thing that remains constant. That is, it too will change. While real estate market cycles are not as predictable as the seasons of Spring, Summer, Fall and Winter change is always guaranteed. Unlike the seasons, real estate market cycles can only be predicted as you cannot “set your clocks to them.” Said another way, things don’t just go from cold to warm to hot every three or four months in real estate. Sometimes you are in a market cycle (good or bad) for a few months and sometimes you are in a market cycle for several years. As of 2022 we are fresh off the heels of a historic run up in appreciation of the likes that most living generations have never quite seen before. Historic both in terms of size (gains) and length (time). Since the end of the Great Recession of 2008-2010 (except for a minor blip in 2015 brought on by rising interest rates), the real estate market in the United States has been (collectively and for lack of a better word) on fire. However, things are starting to change. With interest rates rising and inflation affecting consumer sentiment things are beginning to cool off. Gone are the days of massive bidding wars based on insanely low interest rates and low levels of housing stock (aka: inventory). While I do not intend to predict the next season, I do know that we are entering into a market cycle vastly different then what many have grown accustomed to over the last ten or so years. With this imminent change upon us the challenger question that most will ask is “Is now the right time to invest in real estate?” I, for one, think the answer is “Yes!” I am not alone in this sentiment. Most experts agree that real estate, though having gone through several down cycles, has historically been an appreciating asset class and more of the same can be expected of it going forward. Assuming this is accurate though, how does one obtain a good deal in a shifting market? Let’s unpack that.

Picking a “winner” in a constantly appreciating market is not very difficult. Finding a deal is hard as so many flood the market. At one point in the last few years, you could buy a home in several markets across the country and based on appreciation alone, that same home could have been worth 10%, 15% even 20% more than what you bought it for with no effort on your part. This phenomenon occurred by simply letting the market do “its thing.” A lot of people have made fortunes in this run – and rightfully so – but how do career real estate investors (and even new investors) find winners in todays market cycle? Below are two key points to consider when wondering about investing in a slowing market. Let’s identify those first and then we can discuss a few specifics tactics to help you locate them.

For starters, when a market cools, buyers tend to retreat. Like so many things that involve financial risk, many people only play the game when they know they have a hot hand. For a myriad of reasons (uncertainty, availability of capital, etc.) the same is true in real estate. This results in less competition. Less competition generally translates to more opportunity. This opportunity generally presents itself in many ways but none more refreshing that no longer must succumb to overpaying for these highly coveted assets.

Secondly, unlike in a hot market where deals are gone before you know it, in a slower market, good deals get marketed. The good deals are no longer the off-market deals so an active real estate investor will begin to see them marketed more widely there for a good old-fashioned MLS deal now may begin to look as attractive as the trendy “pocket” listings that were all the rage in the recent run-up.

Now that we have established that the competition decreases and the accessibility increases, both key ingredients for new opportunity, how do we go about finding these doozies? Below are three sure fire ways to get the deals to find you deals in a down market that we have seen in action firsthand over two separate market cycles – the Great Recession of 2008 and again in the 2015 mini-blip. Though different in size and scale to anything that the experts are predicting in this market cycle, both slow-downs taught us valuable lessons on how to keep the pipeline full as both cycles were met with many of the same obstacles that we are dealing with today – uncertainty and availability of capital (or a tightening lending market).

Start a Club.

Many of us are familiar with the REIA (Real Estate Investment Associations) and REIG (Real Estate Investment Groups) model. These are almost always no-frills networking groups that promise opportunities to network with “like minded individuals.” You’ve heard that a million times, right? Have you ever wondered why they were established in the first place? Well, the secret is out… these groups are generally a lead funnel for real estate investors. By bringing in new people to the group, real estate investors have the benefit of hearing about some of the best deals in their local markets firsthand without having to ask as the networking alone brings those deals to the surface. As an added benefit, often, the person or person(s) forming these groups (for better or worse) are largely viewed as an authority within the group thus attracting deals before they hit the general population. Imagine if a wholesaler (someone who contracts a property well under market value who then turns around and sells or a it to a property investor at a slight mark up while still leaving enough profit in the deal for the investor to see value in it) comes to you, the founder of the networking group, and says “who do you think this deal would be a good fit for?” This is what happens when the club is yours. You get first dibs and dibs (in any market cycle) is always good. If you feel overwhelmed with the amount of time, energy and promotions required to launch this concept, consider starting it with a group of people that can also bring value to you group. A great starter pack would consist of a wholesaler, a lender, a realtor, an attorney and a mortgage professional. Each of these bring value (by way of expertise), deal flow and services (by way of their disciplines) to the group but more importantly more people translate to more promotors and more promotors should translate to more new leads. If you want to try something similar but different or if face to face networking is not your thing, consider launching something like this on social media too.

Know your local Lenders.

There is an adage that suggest that the best deals are distressed. Ever heard that? Well, one of the first places where deals become distressed but aren’t yet remarketed is at the bank. Banks, private lenders and mortgage professionals all have obligations to write good loans that “don’t fail”, however, in a slowing market that is not always the case. Before a deal goes to foreclosure, a lender runs its loans through a pre-foreclosure process that consists of many strategies. Strategies ranging from payment deferrals to loan modifications to joint ventures to mandating a sale. Before it gets to the final, critical stage of foreclosure, every lender wants to rid its books of bad assets (non-performing loans) and one of the best ways for them to do so is by introducing new investors to these non-performing loans. The drawback here is that there is no one silver bullet strategy to acquire these assets – there are many approaches (buying the note, partnering with the existing borrower, partnering with the lender, etc.). But the positives far outweigh the drawbacks as, often, these assets come with major upside as the lenders primary objectives are receiving its principal and doing so quickly. As you may know, I am a lender, and I must admit that a speedy resolution in pre-foreclosure is always preferable to a long and speculative one. So, get out there and meet some lenders and always ask them, “Is there something I can take off of your hands?” I assure you this, once the door is opened and the conversations start flowing you will be surprised what will pop up. Seach lenders near you.

Build Your List and Be the Authority.

Assume that now you have an active little real estate club and a list of lenders in your market is a mile long. What next? In the days of social media and in the days of influencer marketing one “ancient” medium remains very active and very profitable. That is email. Any good businessperson knows that your email list is an asset. It is an asset because in your email list you have a captive audience and people pay for captive audiences. So, my final tactic in a down market is build your list. You meet people all the time, so why not save their email addresses and contact information? Those little data points are invaluable as now you have earned the right to communicate to them. Though bigger lists may sound better that is not always the case. Good, clean, vetted lists (not just large lists) are the goal. If you get all four of those, however, you win. But now what exactly do you win? A good list with plenty of names gets you a highly curated audience that is built for and waiting to hear from you. That’s the win, therein lays your prize. Now how do you capitalize on How do you get deal flow? Let’s start with what not to do. We have all been spammed at some point and frankly we hate it so let’s not do that. On the same token, we have all also had an email hit our inboxes that we not only appreciated but often looked forward to. So why not mirror that? You an audience, now it’s time to convert and the key here is content. This is not a piece on content so I will not even begin to try to explain that here, but this is a piece on leads and deals flow and the one tip I can give you about content is MAKE IT UNIQUE. Don’t expect to get a high open rate on an email that is the same old mumble jumble that everyone is putting out. Tell them… no, tell me, something different. People love to know you and people love unique perspectives so, as you market to your email list do not be afraid to be the most highly concentrated version of you. What do you do with this captive audience though? 

 

Like all good things – these strategies require work. But unlike other things these strategies have worked and will work if you put in the time and focus. This real estate cycle, though unnerving to some could very well be the start of your next big push as this real estate cycle will be ripe with opportunity and, as they say, some of the biggest gains are created in a downturn.

Author: Romney Navarro, CEO Streamline Funding

Images from Pexels

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