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Its Happened Before and It Will Happen Again

Steve Dexter
3 min read

Most lost their houses, many went into foreclosure chasing the real estate dream of riches these last ten years. So many new to real estate investing believed that the latest guru who promised an out of area property would cash flow or a “financial adviser” knows best where to put their life savings — “Sure, we will watch you money for you because you are too busy and besides, we are experts.”

We all know what happened. Nobody watches your money as well as you do.

I have listened to many of these “masters” of wealth building, enough to know what works best for me. My buy-and-hold philosophy is invaluable because it works well in all markets. I am proof of that because I bought most of my houses in double AA neighborhoods. Because they are located close to the centers where my tenants work and close to the major highways on which they drive, my houses rent quickly and for more money—even in a down market.

“If you buy well-located real estate in high-demand neighborhoods, you eliminate the most risk in all of real estate because, in good times and bad, there will always be somebody who wants to rent or buy your house.”

I have been teaching this credo in my college classes for years and it infiltrates my whole real estate investment philosophy. I turned down many deals that, while seemingly well priced, were not located well. Others bought in those areas where I feared to tread and held houses without knowing local renter preferences. When you invest without knowing what you are doing, you are not investing; you are speculating, which is much riskier. When prices are rising and everybody seems to be making money, it is easy not to notice the mistakes you are making because a rising market bails out all fools, including the speculators.

Partly because of the speculators, the real estate market in most areas of the United States is undergoing unprecedented changes. These include:

  • The largest house price decline since the Great Depression.
  • The largest number of empty houses on the market in history, mostly due to speculators buying houses that did not rent well.
  • Record high foreclosure rates causing the largest number of bank foreclosures…ever.

Most of the houses I bought over the years, and hold in areas of high demand have not declined in value as much as surrounding areas, and they still continue to rent well. And even more importantly, my properties stay full and rent for market price, or close to it. Longer-term wealth building takes more time, but the path is well marked by the pioneers who have walked it before us.

My concept of the Buy and Hold strategy first involves finding a desirable area where you think potential economic growth will occur. Dilapidated areas, properties that are run down and cities that are financially stressed will be the opportunities of tomorrow. Many of these situations will reverse completely. Communities will improve tremendously, rents will go up dramatically and, real estate prices will skyrocket eventually

Why will all this happen? Because cities will experience economic growth, due in large part to the industries and businesses that came into the area, including manufacturing plants and information processing companies and industries we cannot imagine today. Infrastructure improvements will also benefit the area. At the same time, as industries grow and infrastructure improves, the growth of new housing right now is minuscule.

In many cities, almost everything in the area is built up, yet housing prices and family income levels remain fairly low. But by looking at certain neighborhoods, you can see that income levels will rise due to the creation of new engineering and professional jobs that would raise individual salaries and cause family income levels to rise as well. This situation created the possibility of real estate values rising along with family income.

I know this may seem to be pie on the sky dreaming given present economic conditions, but trust me, it has happened before and will happen again.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.