As real estate investors everyone of us have to be thinking… “how in the heck do I profitably navigate in a market as defined in the title of this article?”
And that is the million dollar question, which I will respond to in just a minute, but first lets look at a few of the facts:
A Look at the Current Housing Picture
- Let’s start with the economy. Depending on who you are listening to, we are either at the bottom, still moving downward or possibly even worse. If you invest in California, Michigan or Ohio you don’t need to be told the state of your economy… it stinks! The message here is that if people aren’t working, they will not be buying real estate or making good renters.
- And now to the second part of the title of this article. The foreclosure rate continues to increase. According to CNN in 4 million home loans are delinquent, mortgage delinquencies are increasingly driven, not only by the current unemployment figures; as pointed out in this real estate decline chart you can see that they are also being driven by the continuing reset of adjustable mortgages. The message here is that we are far from the bottom of the delinquency and foreclosure problem.
- And… yet home sales are increasing. What gives? In another CNN article, Existing homes selling fast – record fast, housing sales are up in many markets throughout the country, especially those that have been bearing the brunt of both the housing and economic downturns. The real question of course is this: Do current sales figures point to a bottoming out of the real estate market? Or is this just an artificial “bump” supported by the Government’s $8,000.00 home buyer tax credit program?
If you stay abreast of all of this news and information as I have, you may have found yourself fighting to stay positive and motivated throughout this entire storm. But then again, you might also be like many successful real estate investors who realize that “all real estate is local.”
Getting back to the million dollar question… “how does a real estate investor profit in this market?”… as follows:
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
How to Profit as a Real Estate Investor in the Current Economy
First, your job as a real estate investor is to know your local economy and why it works the way it does. For instance in Maryland, everyone knows our economy is driven primarily by the presence of the Federal Government and to a lesser degree the bio-tech industry. We enjoy lower unemployment rates and a well above average income level. Knowing what drives your market allows you to not only respond as it changes, but with just a little bit of luck, predict where it is heading.
Also, never forget that all real estate is local right down to the neighborhood. If you are looking to purchase a property and you go to look at that property in the middle of the week you should hope to find very few cars in the streets or on driveways… and just the opposite goes for visiting the property in the evening or on a weekend. You want to see how many people are employed and what kind of cars they are driving (don’t forget the age and condition of these cars). Your worst nightmare would be a street full of junkers at 2PM.
Second, due the high foreclosure rate in many markets, finding good, well priced REOs is almost like fishing in a barrel; most savvy investors are doing just that… and so should you! That said, my advice to many of my clients lately has been to include more traditional marketing methods like letters to absentee landlords, probate letters and even targeted direct mail. Why? Because most investors are not using these methods now; less competition for you means more deals!
Third, if you are counting on Government programs like the $8,000.00 First Time Home Buyer Tax Credit to move your inventory, you had better execute your exit strategy fast. Because December 1st, 2009 is almost here. I wish I could predict the intentions of Congress, but I can’t, and neither can you.
So, what do you do?
Know your local economy and what makes it tick, continue to buy at the lowest prices possible, get your repairs completed in the shortest amount of time, and then get it on the market at the most competitive price you can.
The bottom line for you as a real estate investor is this: there will always be opportunities in any market! Figure out what works in your market and then execute your strategy relentlessly!