Question:
Will Subject-to's, Preconstruction and Lease options create wealth in declining markets?
Answer:
Subject-To's, Lease-Options and Pre-Construction are a few of the ways to get extreme leverage. They do not create any wealth, per se, they just allow you to control a high-valued asset (real estate) with little or no money in the deal.
If you're tied up in Subject-To's, Pre-Construction, and other high-leverage situations in a DECLINING market, you will get clobbered, for two reasons:
- Leverage itself is a double-edged sword. When the leveraged asset is declining in value, you lose equity but are stuck with the obligations/liabilities. A small drop in value can put you underwater very quickly.
- In declining markets, real estate becomes even more illiquid; buyers dry up and you can't exit the deal easily.
With one exception, every wholesaler and flipper in a declining market I know "lost it all" or close to it in the last big crash… and wholesaling is far less 'risky' than Sub-2's, etc. because of the much shorter invested time horizon compared to Sub-2s, Pre-Construction and Buy & Hold strategies.
Were you invested, using those or ANY REI tactics or strategies during the last crash?
If yes, you probably don't need much more explanation.
The important point is that you don't have to invest blindfolded to the market anymore. There are times in a market cycle when those strategies can work well, and other times when they simply will not work.
Where you see this today
The new platform is built to tell you which kind of market you're standing in before you commit to a high-leverage strategy:
- The Market Outlook Score on the Map and in The Table tells you, at a glance, whether a market is set to rise or roll over — so you can avoid locking into leverage in a declining market.
- The Market Summary Report turns that into a go/no-go read for each tactic: the strategy scores (e.g. Wholesale-Flip, Creative REI, Buy & Hold) show PASS / FAIL for the current conditions of that specific market. A strategy that reads FAIL is telling you the timing is wrong there — exactly the situation this question is about.
- The Wealth Phase view of the report shows where the market sits in its cycle, so you can see a peak rolling over before you're trapped in an illiquid, high-leverage deal.