Real Estate Markets and the New Normal!
If I were to ask you what a normal real estate market looked like in today’s environment my guess is that you’d indicate that whatever condition the market is in at this moment would be the new normal!
The fact of the matter is that things are shifting around so fast that it is hard to fully comprehend what normal should look like and how you should position your real estate investing business to profit in this new normal.
The New Normal…
Here is my take on our new normal and why it is important to your business that you learn to adapt and adapt quickly within this market.
This new normal is characterized by constant change. For those actively investing in 2005 you know that for the most part national and local markets were fairly stable. The only real change was ever climbing sales prices and consistent vacancy and rental rates. A very easy market to navigate and profit in.
The constant change of today includes ever increasing government intervention (think Homebuyers Tax Credit), constant rule changes (think the S.A.F.E. Act), an unstable economy (think high unemployment), any number of “interventions” imposed on real estate investors by local or state authorities, and actions taken within the private sector to either chase the profits or avoid the challenges embedded in all of these interventions.
Our challenge as real estate investors is that we are required to make decisions today, amongst the constant change in our market and we most likely will not see the outcomes of those decisions for months after they are made… and as you know… a lot can happen in just a couple of short months.
Sadly, it is almost impossible to stay ahead of this constant change and to make predictions regarding the real estate market beyond the next 6 months is almost pure folly.
What to do?
The key is to stay informed. Know what is happening in your market, paying particular attention to the actions or in-actions of those government agencies that could impact your real estate business. And then make adjustments to your business activities as quickly as possible to position your business in front of the oncoming changes/market.
Before I get into some specific recommendations, lets review a few facts.
1. We know normal is hard to predict… and what works today most likely won’t work tomorrow.
2. Continued intervention into the real estate market by all levels of government should be anticipated for the next 2 years at least.
3. Unemployment, the key to any housing recovery, is not going to improve enough to make a difference until at least the 2nd or 3rd quarter of 2011.
With this as a back drop how do you position your business to get in front of the changing (new normal) market in your investment area?
1. Be prepared to make dramatic shifts in your business plan. For example… if you specialize in REOs and the trend towards short sales catches on you need to change your acquisition strategy. If you live in states like Maryland or Texas and you don’t make that shift properly you could end up in jail. Best course of action… make friends with many wholesalers and learn how to effectively conduct your own conventional (non-MLS) marketing.
2. Some markets will no longer support your selected exit strategy. A good example of this would be markets like Las Vegas or parts of Florida. While it is possible to buy, renovate and sell homes to homeowners in these markets the margins are constantly being squeezed because you just can’t pick up properties at a low enough price… and of course the new low price may not have been reached. Best course of action… either change your exit strategy or consider moving your investing activities to markets that will best support your business plan.
3. Being conservative is the only option! I can’t drive this point home enough. You don’t need every deal that you find… and some of the best deals for you are the ones that you don’t do! When you know the new normal could descend into your market at anytime the last thing you want is a marginal deal that goes bad due to factors now beyond your control. Everyone of us should have learned that lesson in 2006. Best course of action… buy at the lowest prices acceptable to your business plan or don’t buy!
4. Ruthlessly execute your exit strategy. This should be obvious to everyone… but based on horror stories even today I know that it is not. By ruthlessI mean taking control of the acquisition, renovation, sale or rental process such that these actions are completed within your prescribed budgets and time frames. Look this is not some game played with funny money! Your outcomes are tied directly to how well you execute. Best course of action… adopt a sense of urgency regarding everything, and I mean everything.
The key takeaway from this discussion is that for the prepared and shrewd investor, one who is willing make changes quickly, there will be plenty of opportunities for profits.
The bottom line… stay informed… keep an open mind… and move decisively!