But, if you are a serious investor, I would suggest that you don’t even worry about this issue. If you are investing for long-term rental holding you don’t have to be concerned at all about what the prices of properties are doing. You just have to be sure that you have your criteria that allow you to buy in a manner that makes sense for you. When the market gets too overheated, it may be difficult to find good deals and when it drops down to a torpor, there may be so many that you have to spend a little time figuring out which ones to buy and which to ignore. That just means adjusting your criteria a little bit to fit the current market conditions.
Pretty much the same thing applies if you are doing quick-turn investing for quick profits. You are going to be holding properties for only 4-6 months so even if the market is sliding down in value, you will not be devastated. Just make sure that you are aware of the probable resale value before you buy and use purchase criteria to insure a profit if you sell at the expected price or even perhaps a little less than that.
There is no reason, I think, for most investors to do any other kind of real estate investing than long term rental holdings or quick turnover properties. Oh, there are some investors that may, such as land developers or commercial property developers. But for ordinary residential property investing, you should just ignore the market fluctuations, I suggest.
This is for those of you who have been in the game long enough to see this before and I guess it has 3 parts; What are some of the indicators/signs of a market about to burst verse one that is just going to slow down, how does one prepare to take advantage of that type of market and finally I still want to get into the market now (pre-downturn), how can I safe guard my investment? If I can add, I am not based in the US so if the answers could be more generic. Also if anyone can advise on reading material on the subject
If you think the market is slowing down, then you should not focus on making it big with appreciation.
You should make sure you have a good positive cash flow on properties you are holding long term. Rents can go down in a slow economy, but if you can discount your rents enough to retain your tenants and still stay positive on your cash flow, then you will out last most of your competition.
It is probably not a good strategy to buy properties with thin equity and high debt service. You have no margin for error or adjustment. A lot of “subject to” buyers in my town are already feeling the pressure as the good tenants are leaving them to buy new homes at low morgage rates. Some builders are discounting heavily to make sales. The quality of the remaining tenant applicants seems to be declining. More than a few investors here are already giving the properties back to the original sellers, or they are walking away. It seems that they are not really ready to be landlords with professional tenants.
Wholesaling is going good, as well as working foreclosures. You can do that in any market environment. You can do this to generate cash flow to pay down the debt on your keeper properties, and to acquire more properties as others give them up.
Just remember that the real estate markets are cyclical in both appreciation and rents. The best bargains can be found in the slow times when sellers are having a tough time selling. You can make some sweet deals then that you might find more difficult to make when the markets are hot. Remember, you make your profit when you buy the property.
PS: Real estate markets rarely bust like the stock market crashes, but sometimes things do slow down. Just ask anyone in Texas around 1987 to 1990. Gary North wrote about this in a letter awhile back. I’ll see if I can find it if anyone is interested.
One positive thing–yes, positive–about real estate is its illiquidity. Illiquidity prevents emotional selling. This flies in the face of most financial advisors’ advice, I know; but consider: I have a friend who invested heavily in Enron, and did VERY well for awhile. But he sold, lost all his paper profits, and all his invested money too! I have never seen a piece of property worth nothing at all, and even if prices go down, the tendency of prudent REI is to wait it out, since they often can’t sell anyway. Sometimes it pays to just do nothing.
Re: Plan for a a market sliding or about to burst - Posted by investorrob
Posted by investorrob on December 16, 2002 at 01:01:28:
Anton
Really Ron is right —But to set you at ease If it will get you out there doing a deal. Look only for a property where it is in disrepair and the price reflects this to the point that it is 65% to 60% or more below market. Then quickly flip to an investor that would fix up and sell at market value to make his profit. You get a smaller profit but you are then free to find another. and if you only found 10 such deals in a year with an avarage profit of $5000.00 per property you could make $50,000 bet that would be even if you kept your orther job and doing investing part time.
See Steve Cooke with some success storys here on creonline ----He does it full time with many more per year than that.
Anyway you can’t get burnt with the property if you don’t own it and flipping I think answers your question how to invest Really in any kind of market up or down.
But, if you are a serious investor, I would suggest that you don’t even worry about this issue. If you are investing for long-term rental holding you don’t have to be concerned at all about what the prices of properties are doing. You just have to be sure that you have your criteria that allow you to buy in a manner that makes economic sense for you. When the market gets too overheated, it may be difficult to find good deals. When it drops down to a torpor, there may be so many great buys that you have to spend a little time figuring out which ones to buy and which to ignore. That just means adjusting your criteria a little bit to fit the current market conditions.
Pretty much the same thing applies if you are doing quick-turn investing for quick profits. You are going to be holding properties for only 4-6 months, so even if the market is sliding down in value, you will not be devastated. Just make sure that you are aware of the market price trends and the probable resale value before you buy and use purchase criteria to insure a profit if you sell at the expected price or even perhaps a little less than that.
There is no reason, I think, for most investors to do any other kind of real estate investing than long term rental holdings or quick turnover properties. Oh, there are some investors that may, such as land developers or commercial property developers, where development takes many years and ending in a down market can hurt. My brother Roger Starr is experiencing this with his new office building in Wilsonville Oregon, where the bad economy has hurt his renting out the property. But for ordinary residential property investing, you should just ignore the market price fluctuations, I suggest.