The Pendulum Swings both ways!

There are so many wild things going on in real estate and mortgages right now, that you have to expect some overreactions on all sides of the business. Specifically, last September Fannie Mae's guidelines limited investors to purchasing 4 properties. Ouch! This put a crunch on many would-be investors.

At the time it looked like an over reaction, but in hindsight, it did have some positive effects. Over the past decade, there were many "investors" who had no business being in the business of real estate investing. Now, they were not the only problem, but the system encouraged them to purchase 10 properties and the vast majority of those folks were completely over-leveraged and not prepared to handle a down turn in the market.

While I completely disagreed with the decision last fall to cut back to 4 properties per investor, it did serve to stem the tidal wave of investors who were getting into the market and were ill prepared for the worst. Granted, by that time, the damage had already been done, but at least the effort was made to correct one aspect of the problem. I think that, by and large, it worked to keep the people out who should not have been investing.

Here is the funny part though...the people who are true investors know how to move money around and purchase properties REGARDLESS of what Fannie Mae is up to. Those relatively few have been largely unaffected because they understand how to buy correctly and more importantly, know what ratios they should stay under to keep from being over-leveraged. If we the bankers tell us what we can and can't do, we will be in a pretty precarious place. Thank God there are those investors who know where to get the money to move properties.

You see, it's a very bad thing when deal flow stops, so we all need investors to keep deals going when the market slows down. There is legislation being considered in every state that threatens the rights of investors and that is a very dangerous thing. While we are in this down market, we need investors like never before because, by and large, they are the only ones making a consistent difference. I know there will be someone who will tell my how untrue that is, but I don't care...whether I am right or wrong is not important, the fact remains that real estate investors are a very, very necessary part of our financial eco-system. Take them away and bad things happen.

The herd of Investors has been thinned out to a reasonable degree. Now we need to get back to basics and build a nation of educated investors...and by that I am not talking about an education by Carleton Sheets. I am talking about sound business plans with reasonable exits and a deep understanding of leveraging principles.


Healthy Investing!

Rob

http://www.LocalRealEstateDeals.com