Two big shifts, which started back in 2013 but have accelerated in 2015, have combined to bring about a very different housing market from what we saw immediately following the 2007 crash. These two big shifts are the return of subprime mortgages and the re-emergence of stated income mortgages.
Together, the return of subprime and stated income loans signal a substantial shift in real estate dynamics, and present an opportunity for real estate investors in 2016 and beyond.
Subprime and Stated Income Mortgages Return
Following the housing market crash and the great recession of 2007-2008, most experts didn’t think that “higher-risk” mortgages would return to the market.
But today, two traditionally “riskier” loans are back in a big way, though they are different than before the 2007 housing crash.
Subprime mortgages make it easier for individuals with a poor credit history to qualify for a mortgage, and stated income loans make it possible for borrowers who are not in a standard employment situation to get a mortgage.
As a result, homebuyers who could not qualify for a mortgage immediately after 2007, can now potentially qualify with the return of subprime lending and stated income mortgages.
Higher Demand, Higher Prices, Higher Profits
For real estate investors, tightened credit and stricter mortgage approval policies in the general public meant fewer buyers and less demand. But now, with the return of subprime and stated income mortgages, investors could see higher than expected demand and real estate prices, which could result in higher profits.
Additionally, easing mortgage requirements could help real estate investors by lessening the need for seller financing and rent-to-own financing, because buyers with lower credit scores can qualify for a mortgage, and self-employed buyers can get stated income loans. As a result, investors can turn their inventory more quickly and reinvest cash profits.
With this said, there is a great deal of room for the market to move up. And savvy investors will be cashing in profits for years to come.
Turning Renters Into Buyers
The return of subprime and stated income loans has the potential of turning renters into homebuyers, which can also be profitable for well-positioned real estate investors.
As more people qualify for a home loan, fewer people will rent. So for real estate investors holding on to inventory as the housing market improves, opportunities will avail themselves to sell and make substantial profits.
For example, an investor purchased a property for $50,000 after the 2007 housing crash, and has rented it to a tenant for $1,000 per month. The tenant now qualifies for a mortgage and purchases the home for $120,000, producing a handsome profit for the investor in just a few years.
Graystone Investment Group
As an Investment Group wholesaling properties since 2005 in the Greater Tampa Bay market, we continue to uncover great investment properties at outstanding prices, as we anticipate rising property values and increasing demand.