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Article of the Month for October 2001

Re: Optimal Buy/Sell Strategy

Posted by Ward-CA- on September 30, 2001 at 4:41 PM

In Reply to: Economic Slowdown Strategy posted by Donovan Gekko on September 30, 2001 at 1:40 PM

: What is the most strategic way to position oneself as a new foreclosure investor (in Atlanta) during these times? buy and hold? buy and sell less at the auctions? expect longer turn arounds? reduce pricing?

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Donovan, it's of primary importance not to guess what your local market is doing—know what it’s doing on a monthly basis.

To do that I have a local real estate agent check on the average marketing time it takes to sell a single family home in the county via the Multiple Listing Service (MLS). I also get a monthly statistical printout from our local county recorder’s office on the number of deeds, trust deeds, notices of default and trustee’s deeds that were recorded. Finally I track what the mortgage interest rate is every fourth Sunday from the Mortgage News tables in our Sunday newspaper.

With these numbers I can track the movement of the local real estate market month to month as it goes from a Seller’s market, to a Neutral market, to a Buyer’s market.

In a Seller’s market the average marketing time is from 0 — 60 days and interest rates are from 0—10%. In Neutral market the average marketing time is from 61 — 90 days and interest rates range from 10+%—12%. In a Buyer’s market the average marketing time is 91+ days and the interest rate is 12+%. When your two indicators are out of sync then marketing time will dictate the market you’re in.

The recorder’s statistics will verify the market we’re in. You can track the number of deeds recorded from month to month to see the trend of real estate purchases overall. The number of trust deeds recorded each month will be indicative of the tempo of refinancing and the number of defaults and trustee’s deeds is directly linked to the tempo of the local foreclosure market.

In a hot Seller’s market competition will force you to pay more at the auctions, so you will make less per transaction, but you’re holding time (from start to finish) should be dramatically short (4 to 6 months).

In a Neutral market you can buy cheaper because there’s less competition, but you will be taking about 2 months longer to sell your property.

And in a Buyer’s market you will be just about the only one at the foreclosure auction and will be able to buy very, very, cheaply—but your holding time will stretch up to 10 months.

The only ingredients you need to make property sell are: (1) Glitter, (2) a price you can defend, and (3) the availability of financing. In my opinion you’d be making an expensive mistake if you think that just lowering your price will make your house sell. Personally I add more to (#1) and (#3), and apply Prudential’s “variable range marketing” to market my houses as fast as possible.

Ideally, the time for inventory accumulation is during a falling Buyer’s market and the time for inventory liquidation is during a rising Seller’s market. So if you have unlimited funds, buy like crazy the lower the market goes and then wait to sell into the next rising market.

Hope this helps out.

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