Be Smart: Don't Listen to the Media Hype

“There are too many foreclosures in my area.”
“The market is dead”
“New home construction is making it impossible to compete with.”

When I hear any of the above statements, my response is, “Whatever.”

If everyone believed the media hype about global warming, everyone might move to higher ground. The media continues to report that the Toyota Camry is among the most stolen vehicles. Does that hype lead to no one wanting to buy Camry’s? Hardly. That model is among the best sellers nationwide.

Negative real estate hype…Don’t believe it all. It’s as simple as that.

Does that mean there is no truth to it all? No. The media really isn’t lying. They merely aren’t being terribly specific. It’s popular. The media could come out and say, “Real estate is thriving in certain areas of the country.” But real estate is doing poorly in more areas than areas doing well. It’s a generalization with a popular topic right now. In other words…Its hype.

The market is dead in certain places but not everywhere. It is tough to compete with a new home builder, who is offering no money down, free upgrades, warranties on everything and no closing costs if the house you are rehabbing is across the street from it. I don’t like to buy houses if there is new construction within a few miles of the house I am looking at. Foreclosures are at record highs in many parts of the Country but they aren’t killing every market.

“Whatever! Just be smart!”

Let’s take a look at a metropolitan area that is not doing very well… Detroit. Even in Texas, I keep hearing about how awful real estate is in the state of Michigan.

Michigan? I thought we were talking about Detroit? We were talking about Detroit but Detroit is in Michigan, so it must be bad everywhere in the state, right?

I doubt it. Well look at all the foreclosures in Michigan, people say. Okay, let’s look at all the foreclosures in Michigan… Where are the majority of them located? Wayne County. And which city within Wayne County has the highest number of foreclosures? Detroit. What’s my point? Don’t believe the media hype.
A good deal in Detroit is a good deal in Detroit.

Let’s take a look at a real estate investor in Detroit. They come home, sit down to watch the news on CNN and the lead story is about how the property values in the state of Michigan are nose diving. The investor smirks at the news, takes a sip from a can of beer and flips the channel. All without a second of worry about the property he is currently rehabbing in Detroit. Why? Because that investor was smart and didn’t buy into the media hype.

A smart investor will research the area and immediate area around the house they are looking to buy. If there are 15 other houses for sale on the same street and most have been on the market for over 100 days, a smart investor will not try to convince themselves that their house will sell faster than the others. Now what if there are no houses for sale on that block and only a handful in a quarter mile radius? Look closer. What if there have been several sales in that area within the past six months that all sold with a reasonable price per square foot? Look closer. How much will the house cost to buy right now, in its current condition? How much should it sell for after being fixed up, based on the recent comparables? Don’t look at the deal in terms of dollars though. Look at the percentage in the deal. A deal should have a minimum of 30% equity and if there are a lot of repairs needed, the amount of equity needed should increase as well. “But the house is worth $200,000 fixed up and I can get it for $150,000. That’s $50,000 in equity”! Umm, no it’s not. That’s only 25% equity. You have to pay closing costs when you buy it AND when you sell it. You will likely need a Realtor and that will be at least 5%. Then it will cost money to fix it up. It’s going to cost money for utilities and holding costs as well. That $50,000 gets eaten up pretty quick. Ok, ok, ok….. I am getting off the subject a little.

The point I am trying to make is an investor, with a property in an area the rest of the country believes to be dead, smirks all the way to the bank. Why? They are smart and don’t listen to the media hype.

So be smart. Don’t try to compete with a builder. Buy a house where builders aren’t.
Be smart. Instead of blaming foreclosures for killing a market, why not try to BUY one of those foreclosures and cash in?
Be smart. If a market really isn’t doing well, find the parts that are doing well. The day people literally stop buying and selling houses, is the day you can honestly say, “The market is dead.”

As I said, a deal is a deal, no matter where it is.
Smart investors don’t listen to the hype.

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