A catch phrase that has become common in the real estate industry describes today’s environment as the “New Normal”. While it’s true that today’s situation is different than it was back in 2005, 2006, 2007, and even the big changes that came in 2008, the old saying that “the more things change, the more they remain the same” is equally true.
Let me explain. The real estate industry has been through recessions before. It was tough but the industry survived the Great Depression of the 1930s. Since then, there have been 17 recessions leading up to the Great Recession we just came out of. The industry survived this one as well.
Real Estate is Different From Other Industries
Commercial and residential real estate will survive because people need a home to live in whether it’s a multimillion-dollar mansion or a two-bedroom apartment. Business doors will stay open creating a need for commercial property owners. Real estate is an industry unlike manufacturing that can be relocated to China or software development that is outsourced to India. The real estate industry, just like the ground it’s built on, isn’t going away.
Some people will profit highly in the changed environment and others will drift away to other jobs that don’t require them to adjust to change as much. Those that succeed in today’s environment will educate themselves to what’s required to prosper today. That means learning how to creatively create deals when lending terms are tight, inventory is sparse, and it’s become a seller’s market. If you’ve been waiting for the “old normal” to return, your days in real estate are numbered. The new normal is here to stay until something happens to create another change.
Change Has Already Come
Change happens frequently in the real estate game. In the last 18 months, we’ve transitioned from a marketplace full of short sales, foreclosures, and underwater mortgages to a seller’s market. There are still many underwater mortgages but most of those will go away over the next two years – most sooner.
Today’s game for investors is having access to capital and searching out motivated sellers. Traditional credit markets are also going to be tight for years to come. It’s just a tighter version of the old normal from years ago. Before credit was given away to anyone with a pulse, it was normal for buyers to be required to have good credit and a down payment. Welcome back to the old normal.
What’s Different in the New Normal
What’s different in the new normal is that private money is moving in to replace traditional bank financing. The private money is going to want their loans to be secure but they will make loans where banks are saying NO. Oh, and it’s the old risk-reward formula. Where the private money takes more risk, they will demand a higher interest than the artificially low rate of 4.5% that isn’t being loaned out anyway. Succeeding in today’s real estate market means learning how to access private money.
If you’ve already made the transition and are succeeding in the new normal – great! I encourage you to leave a comment about what you did to make the change.
If you still haven’t learned to work with private money and find motivated sellers, it’s time to make a decision. Either you can grab the brass ring to profit in the exciting real estate industry or you can start looking for a job flipping burgers because that’s the other industry not going away – feeding the masses cheap eats.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.