Market Flushes Out The Not-So-Serious

Yesterday afternoon, I had a guy over to give me an estimate on cleaning my carpets. He was the owner of the carpet cleaning company and we got to talking and it turns out he used to invest in real estate. When I told him I had sold my rental a while ago, he said "So you got out while you could, huh?", referring to the recent market slowdown. Well, no, I got out because it made sense to me at the time.

He went on to tell me that he had 9 houses at one point. He was flipping properties using 100% financing (bank loans, not hard money). He's got one property left that he's got rented on a lease option, He owes $750,000 and said it just appraised for $725,000. That's not good - especially if his lease option contract states the sales price will be the appraised value (which I have seen a lot of contracts specify).

I didn't bother to tell him that I was still working real estate. It was obvious to me that he was one of the ones who made a quick buck in the real estate boom and was now leaving the party as things slow down. His strategy seemed to be "buy and pray for appreciation." During the boom, this worked, but nowadays, it won't.

All in all, I'm glad to see people like him leaving the real estate investment arena. It's less competition for me and it will help the market return to "normal" valuations. This is apparently happening across the state, as I got a call yesterday from my Realtor informing me that her husband (who is part owner of buyazforeclosures.com, a company that buys and sells foreclosures) is getting back into the property wholesaling business because spreads, the difference between what a house can be bought for and what it is worth, are getting bigger now.