The key secrets to real estate success (in a crisis or in a recovery)

I recently discovered a blog post that I originally posted in October 2009. The title of the article was "How to profit from other people´s irrationality" and at the time, there was certainly plenty of irrational behaviour to observe.

That article was very much written in the eye of the storm. The fallout from Lehman Brothers was still fresh in peoples minds, unemployment was increasing dramatically and the sovereign debt crisis was starting to rear its ugly head in Europe. In late 2009, real estate prices, particularly in hotspots like Florida, were falling off a cliff (they eventually stabilised in late 2010). 

The people who used cash savings to purchase the USA investment property we were promoting at the time were definitely moving against the herd. After all, the only reason USA real estate prices were so cheap was because so many individuals, companies and banks wanted to sell. Not everybody needed to sell, but there was enough panic in the air that they did so anyway, even if it meant swallowing a huge loss.

Conversely, the buyers who were savvy enough to realise that many of these properties were fundamentally sound and irrationally priced have been handsomely rewarded.

Nowadays, the real estate investment landscape in the US couldn´t be more different. Average prices have risen in all 20 metro areas for almost 4 years in a row, unemployment is just 5.6% and property sales volumes are in rude health and showing no signs of slowing down.

With such a dramatic change, should investors be adopting completely different strategies to those who were buying in 2009?

Putting your money to work
Before I answer, consider the following quote from the blog referenced above that was published nearly six years ago. It is just as true today as it was then:

“Life is full of uncertainties. Future investment earnings and interest and inflation rates are not known to anybody. However, I can guarantee you one thing.. those who put an investment program in place will have a lot more money when they come to retire than those who never get around to it”

In other words, whether asset values are falling, stabilising or rising, if you don´t save some money and then put it to work, you´ll be a lot poorer for it in the long term.

I know a tonne of BP readers have owned properties for 20+ years. Just think about how much much rental income and capital growth has accrued in those assets while you were busy working 9-5!!

For newer readers, can you imagine how different your financial situation would be in 20 years if you put together a plan and took action to purchase 1, 5 or 10 rental properties and took good care of them?

Perhaps it is easier if I illustrate with a personal example. I run a busy business helping sellers to find international investors and the fees we charge them pays the bills and keeps the lights on. However, any increase in my net worth over the past 10 years is almost entirely down to the cashflow and equity generated from property investments - i.e. by putting my excess savings to work.

In conclusion, if you can ignore the urge to follow the irrational behaviour of the herd and concentrate on planning, taking action on and sticking to your own financial goals, then you can be successful no matter what part of the economic cycle we are in.

Happy investing!