Over the past few weeks, I have had several conversations about real estate that gave me new perspectives on the market. As not to divulge personal and private information, as I sometimes do, I will change the specifics of the scenario without compromising the examples and lessons.

I spoke with one woman, a repeat client, with whom I have done multiple mortgages. I helped finance her first investment property purchase, and she went on to buy several more homes since then. She called to let me know that she was putting in an offer on another investment property and was looking for financing. To put her experience into context, most of the homes she purchased over the past seven years easily doubled in value.

She was now looking to buy another property, which she acknowledged did not have proper cash flow. This house was similar to two other homes she had but admittedly was overpriced by about $25,000 to $50,000 to get the deal. She explained that she was willing to buy the home because it was easy to manage as it was near her other properties, and even if she needed to put in $10,000 – $15,000 over the year in shortfall, this was a long-term hold.

We discussed how costly the current market is and the likelihood of a slowdown in the rampant home appreciation that most have become accustomed to. In fact, she felt that home prices would likely decrease over the next year or two. When the discussion came to a pause, I asked her one question – If you feel home prices might go down, and you are poised to lose at least $800-$1000 a month, why buy an investment property right now?

Another notable conversation that I had recently was with a very savvy couple whom I helped buy a fixer-upper home several years ago. They got a great price and managed the extensive renovations on their own. They did exceptionally well with the purchase and now have a beautiful home that has almost tripled in value. They found a property that they would like to purchase as an investment to renovate and flip. They were comfortable with the renovation process and felt this was a good opportunity to capitalize on real estate, as so many others have done.

The home was not in an area they were familiar with, but they were confident it was in a good location, and wouldn’t be trouble to flip once completed. We discussed the numbers which they had calculated beforehand. I asked them to send me the breakdown, which they promptly did. Their calculations didn’t include several sale expenses such as tax consequences, realtor fees (should it be applicable), and no carrying costs for the mortgage they would be holding for the duration of the renovation.

When all was said and done, in the best-case scenario, they would barely eak out a five-digit profit. That was also under the premise that property values remain relatively flat and construction costs don’t exceed budget. They would have to invest a lot of their own money and might have to tap into a HELOC, which was not factored into the expenses either.

So, what are my new perspectives on the market, you ask? While I am highly optimistic about the housing market – for many current homeowners, the prevailing experience has been an ever-ascending market where properties consistently appreciate value. This has given birth to an era of optimism, where investment in real estate feels almost infallible. However, many of these homeowners have yet to navigate the choppy waters of a down-trending market. Such a landscape requires a different strategy and mindset, and the absence of experience in such conditions might leave some ill-equipped to handle potential declines or stagnation in property values. As the market shifts, adaptability, foresight, and expert guidance will be essential for speculators to succeed.

Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at Shmuel@approvedfunding.com.

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