The Housing Market Crash Affects Investors and Speculators
Homeowners are not alone in facing the backlash from the housing market crash. Investors are also faced with very serious repercussions. 2005 saw the peak of the housing market and many investors hopped on board by the end of the year into the next year as they observed the huge profits that the housing had created. The market at that time was indeed in a frenzy and it was a popular belief among investors that they only needed to snatch up hot properties then quickly resell them. This strategy was indeed successful in producing quick fortunes for many of these investors which only served to fuel the flipping trend. Even persons lacking real estate experience were eager to get on board the "money train".
The once frenzied real estate market has today not only begun to level off but has, in fact, run out of steam. Investors now face great difficulties in reselling properties much less to turn a profit while the market continues being flush with inventory. There is certainly no doubt that the flipping market has slowed significantly.
In addition, the housing crisis has also caused investors to begin losing money. One key strategy in turning a profit from the flipping process is to ensure sale of the property quickly enough so that the investor will have the luxury of paying little or no mortgage payments. This was certainly no problem during the days of the housing market boom.
Investors could easily purchase properties, rehabilitate them within one month, slap on "for sale" signs and sell before even the first mortgage payments even became due. If they were even unable to sell until second mortgage payments became due, however, they would still stand to gain a massive profit from the deal on account of the rapidly increasing property values at that time. This is simply not the case in today's market.
As such, many investors must now either live in these homes or opt to rent them out so as to stay afloat in the market. Some investors that had been renting previously, now needed to vacate the rental property and live in their investment home. Others have been forced into renting the properties at reduced rates so as to generate some cash flow to help cover expenses and mortgage payments.
The problems don't end there, however, as speculators are facing even more problems. One thing which separates speculators and flippers is that while flippers often purchase properties, attempt to infuse them with added value by way of renovations then sell for profit; speculators, on the other hand, purchase properties then try to resell them without having made any improvements. Speculator-type investments were once quite profitable but are now no longer so. Nowadays, investors who engage in real estate speculation find themselves at a great disadvantage when trying to sell properties.
Due to flipping and speculation, the market is now flush with properties causing some markets to eliminate these processes all together. In fact, many communities now have restrictions on a buyer's ability to resell a property within one year following the date of closure on that property.
These restrictions effective limit the activities of investors and speculators whose main aim it is to resell within no more than six months. Communities demonstrating the foresight to impose these restrictions at the housing booms peak have found themselves much better of today than those other communities in which speculation and flipping went unchecked.
Though the housing market depression has caused a large number of investors to back out, there is almost no doubt that when the market rebounds (as predicted) by 2010 or sooner, these investors will not only return but will be primed to reap the sure profits yet again.