Stories of a double dip can be found everywhere, is it true? Inventory is adding up as banks are holding back foreclosures and government intervention is further slowing the recovery. I saw an email recently with and asterisk by half of the 30 listings which means they are on hold due to the Foreclosure Moratorium. Everything has to work its way through the system. Some markets could be in trouble, others are prime for the picking.
Foreclosures will not just disappear. Each one has to run its course through the system, the longer it takes for these to hit the market the longer it will be before a recovery. What if banks let everything hit the market and the government doesn’t intervene? Massive supply with low demand will definitely cause a double dip, some areas more than others.
What is more likely is banks will slowly release REOs to the market and the government will further intervene to avoid another big drop. This will prolong things, basically a plateau near the bottom. Also, shadow inventory or people who have been waiting out the market to sell will grow causing more supply. It will just take time.
Now, let’s look at a few things. Where are the foreclosure rates, unemployment rates and vacancy rates the highest? Where are the homes over valued and where do rentals have very low cash flow? All of the markets that where overhyped dominate the wrong end of these factors that impact value. CA, FL, Vegas, Phoenix are the main markets that could be in trouble. If you are a speculator, you could be in trouble. If you are a flipper, the market goes down and you have negative cash flow then you are also in trouble. Still people flock to these areas as they are desirable. But from an investing standpoint, only the savviest investors can make it work, the rest are about the make foolish decisions for all the wrong reasons.
So where are the opportunities? Everyone seems to follow to the overhyped markets when in fact the market outlook is very poor. The under the radar, very affordable markets are ripe for tremendous deals. Not only are unemployment and vacancy rates low but there are huge discounts for foreclosures and the cash flow is at or near the highest in the nation. The stars have almost aligned in these markets. Huge discounts, tremendous cash flow, low chance of depreciation, low unemployment, low vacancy rates, etc. I have researched all of these factors to find these are just some of best markets to invest in: Cleveland, Columbus, Memphis, Indianapolis, Pittsburgh, Cincinnati and many smaller, more affordable and less hyped markets. They may not have a sparkling image, but image is a perception of reality. Reality is that these are the best performing markets for minimizing risk and maximizing return.
Are all deals in these markets great deals? No, of course not, there are good deals and bad deals everywhere. Understand the risk and justify all your decisions with due diligence. Always have strong, multiple exit strategies which can be achieved with huge discounts and good cash flow. This is how savvy investors become successful.
So with the market staying near the bottom for a few more years, where are you going to invest? How are you going to take advantage of the opportunities of a lifetime?
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