By Alan Brymer
You might think I’m off my rocker for suggesting that a housing boom can actually work against you, but it has happened to many, many investors, including myself. Let me share with you two observations I’ve made after going through a housing boom into a housing collapse.
#1: A housing boom can keep you from learning to negotiate. Think about it. When property values are going up thousands of dollars per month, you could actually buy a house for full market value and resell it later for a profit. You could buy just about any house on the market without picking and choosing, or offering less than asking price.
Conditions like these only last a short while and are no way to run a portfolio in the long run. What will happen when home stop going up in value? You won’t have any negotiating skills, which take time to develop and cultivate, and you will either waste time learning, continue offering way too much and getting into trouble, or not making any offers at all.
#2: A housing boom can make you focus on short-term profits I remember when any investor with a pulse could get a loan to buy a rental property, often with no down payment and 100% financing. Or, people would get short-term financing with ridiculously high payments, because they intended to (and could) sell the house for a profit in a few months.
So guess what happens when financing gets harder to come by? Your whole operation will get shut down. Or, you might buy several properties with short-term, expensive financing, but not be able to sell them OR rent them out, and then you’re stuck.
#3: A housing boom makes you too lazy to find private money. In my opinion, the key to success is to build relationships with private lenders constantly, so that you can always borrow money on easy terms no matter what your exit strategy.
So while a housing boom is great in regards to your houses’ equity increasing, the side effects are the 3 temptations I’ve listed above. I recommend negotiating well and finding private lenders regardless of your market conditions.
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