The verdict on the press is unanimous: We are currently experiencing a scary subprime mortgage market meltdown and it will affect everyone from Wall Street to Your Street. Certainly, the subject has gotten sufficient (ok, maybe a little excessive) coverage. However, I wanted to look at it from a different perspective. More specifically, how is this current crisis affecting (or going to affect) the real estate investment market. Are the subjects even related enough to be discussed on the same post?
I believe that the subprime mortgage crisis will affect real estate investment in two major ways (one more obvious than the other):
1. Put quite simply, there will be fewer buyers available to purchase the fixed-up homes. With some of the biggest players in subprime lending going under, many buyers with spotty credit and not much money to put down will find themselves unable to purchase a home. Home flippers have counted quite religiously on offering $0 down deals to prospective buyers to entice them into purchasing their investment homes. They'll still be able to do that but to a much lesser degree as they will be limited to buyers will good credit. On the other side of the coin, whenever a buyer is found, chances of the deal falling through will be lesser as well.
2. Most importantly, this crisis will reduce competition for foreclosures, hud homes and investment properties in general. This is the less obvious of the two. You see this crisis will "weed out" a lot of the Carlton Sheets/Robert Allen seminar type of investors that purchase investment properties with no money down. These types of subprime investment loans will, scratch that, are no longer available. As such, those who favored a more conservative investment strategy, meaning 10% down minimum on the purchase, will face less competition from the OPM (other people's money) investors.