It's 5:30 P.M. on the Monday before the Presidential election. I, for one, am just going to be happy when it is all over and done with. Tomorrow, I'm going to vote, work, and avoid TV and radio. I just want to wake up on Wednesday morning and find out who was elected from the newspaper. And then maybe life can get back to normal.
But on the eve of the election, I thought it might be interesting to share a little bit of insight into what is going on in the world of Richmond real estate, right now. I don't know that it is all - or even somewhat - attributable to the election. But I've had several people who have been in the business a long time say this happens every four (4) year cycle.
First, in the plain vanilla residential real estate market, it got really, really quiet all of a sudden. Traffic slowed or came to a stop on my listings. My RE/MAX colleagues have been telling me the same thing. Are people waiting to buy until the election is over, and this much heralded "certainty" shows up? I don't know. But it does seem that owner-occupant buyers have put their home searches on hold.
Which leads to a second observation: The investors are back in force, and there seem to be a goodly number of them. Why is that? I really don't know. But it seems like there is a much bigger portion of the population than we have seen in the last five (5) years that has the money to invest in income-producing real estate.
I've got investor buyers that are ready, willing and able to buy right this minute, with cash. But there isn't enough - or any - attractive inventory to buy. We're looking, and we're looking, but it seems like the same group of buyers is chasing a very small pool of properties. The "deals" that come on the market are going under contract in just days, often with multiple offers and escalation provisions. Witness 817 Pepper Avenue this past week, in Area 20. If you blinked, you missed it.
With these investors, where does the money come from? Well, it seems to come from one of a few different places:
- Cash on hand savings. Some people have done very well in the downturn, and have enough cash to finance their own deals.
- Investment portfolios. I've seen people using their retirement money to purchase income-producing real estate, because the return on the investment is substantially more than they can get in the market.
- Banks. Typically, the banks that lend speculatively do it only in a few situations. Usually it is a community or a regional bank, and it's doing "relationship lending," where it is lending to an existing customer with a very deep relationship with the bank, and/or experience doing the kind of rehabilitation project they are trying to get financed.
- Hard money lenders. These are the guys that charge a substantial interest rate to lend to a riskier borrower.
- Friends and family money. Needs no explanation. Mom or Dad or Grammy or Granddad is willing to underwrite the investment.
It sure seems like all kinds of people are viewing real estate as one of the best places to park investment money right now. That's not just the guys who are flipping houses again, or professional investors. It's also Mom and Pop folks who are investing in income-producing real estate for the first time ever. It's also the guys who are financing the flipping. If you can get a minimum of 10%+ doing hard money lending, have a first position lien on a tangible asset, and are working with someone with a track record with investment real estate, where else are you going to get that kind of return, with that kind of certainty?
Third observation: For a ready, willing and able owner-occupant buyer, this could be the best possible time for you to buy a house. But you need to move fast, and close before 2013. The reason: You will have leverage with certain sellers, who want to avoid the increased tax hit that they will take in 2013. Not all sellers will care - owner-occupants can still shield up to $250,000 as individuals, $500,000 as married couples, of profit from the sale of a primary residence from any income tax. But people who are selling second homes, or investment properties, or estate sales, are likely going to take a substantial tax hit if they do not close a sale transaction by December 31, 2012. And time is running out to make that happen.
So my conclusions:
1. Owner-occupant sales will, I hope, pick up after tomorrow, when there is more "certainty" and the 2012 Election is over.
2. Investors will continue to enter the market in increasing numbers, as real estate continues to perform better than other asset classes and money remains stupid cheap.
3. Buyers savvy enough to buy between now and the end of the year should see the opportunity for deep discounts, as sellers rush to avoid major tax increases that are anticipated in 2013. I believe in retrospect, as we get into 2013 and can look back, we'll find this leverage, combined with the historically low interest rates, will make 4Q 2012 one of the best times in recent memory to buy real estate.
So, other real estate professionals, what do you think of these predictions? Comments are always appreciated.