The Real Estate "Bubble"
I have been asked questions about the so-called real estate "bubble" too many times. The media has made it up and played it up. The fact is that real estate, like everything else in life, repeats a cycle approximately every seven years. Follow the real estate market over the last hundred years, along with the U.S. economy and you will see what I mean. I have been in the Real Estate Investing business for over twenty five years and have seen, felt, and cried over three complete cycles, and now am seeing my fourth.
Maybe the media wants to call this particular point on the timeline a "bubble", but I simply see it as that high point in the seven year cycle. Yes the market will adjust down, maybe a little or maybe a lot, but based on previous cycles, prices should drop, and they should also recover within three years, and then go higher, far beyond where they are now. Should you continue to acquire properties during the downturn? Most certainly! Isn't it more risky? Not if you are acquiring properties the right way - the risk is minimized.
The next question that comes up is, "How do you buy right at anytime in the cycle?"
First: Find people with problems who control real estate. You have to work with motivated sellers. If the people have problems it is usually reflected in the care of their real estate. Help others and you end up with the house and its equity and cash flow potential. They will feel overjoyed that you got them out of their current situation. In their mind they don't care to gain money, mainly because in most cases it doesn't solve their problem.
Second: Use leverage. Some investors have a chunk of cash available and buy properties using their cash. This is NOT a smart way to invest. Let me explain leverage: Let's say you buy a house for $100,000.00 you do not improve it and the market is stagnant. Economic inflation has always been about five percent per year. Therefore, on the anniversary of your purchase, the property value has increased by at least five percent and you could sell the house for a five thousand dollar profit. If you paid all cash for the property, you would have made five percent on your investment. For example, let's say you did the same purchase with only five thousand dollars down. That equates to ONE HUNDRED PERCENT annual return on your money! Real estate sounds pretty good now doesn't it? Even in a slow market!
Third: Find ways to increase the value of the property. Before you buy, ensure that there are improvements that can be made that will increase the property value. Be aware that a new roof will probably not increase the property value, nor will a new furnace or new windows. These are items that are expected to be in good condition and will not increase the value, although they may help in making a quicker sale. Items that will help increase the value are a coat of new paint, landscaping, updating kitchens & bathrooms and other cosmetics.
Fourth: Acquire properties at the right price. If everything went wrong from the time you bought it, could you still sell it and make money? Let's say you bought a property and the renovation costs were twenty thousand dollars more than expected. Is there still enough to "fire sale" the property and make profit? An experienced investor ensures that there is much more profit built into the purchase price than expected, simply to allow for the unexpected.
The serious, active real estate investor knows that it is always a good time to buy and always a good time to sell - if you buy right.
Maybe the media wants to call this particular point on the timeline a "bubble", but I simply see it as that high point in the seven year cycle. Yes the market will adjust down, maybe a little or maybe a lot, but based on previous cycles, prices should drop, and they should also recover within three years, and then go higher, far beyond where they are now. Should you continue to acquire properties during the downturn? Most certainly! Isn't it more risky? Not if you are acquiring properties the right way - the risk is minimized.
The next question that comes up is, "How do you buy right at anytime in the cycle?"
First: Find people with problems who control real estate. You have to work with motivated sellers. If the people have problems it is usually reflected in the care of their real estate. Help others and you end up with the house and its equity and cash flow potential. They will feel overjoyed that you got them out of their current situation. In their mind they don't care to gain money, mainly because in most cases it doesn't solve their problem.
Second: Use leverage. Some investors have a chunk of cash available and buy properties using their cash. This is NOT a smart way to invest. Let me explain leverage: Let's say you buy a house for $100,000.00 you do not improve it and the market is stagnant. Economic inflation has always been about five percent per year. Therefore, on the anniversary of your purchase, the property value has increased by at least five percent and you could sell the house for a five thousand dollar profit. If you paid all cash for the property, you would have made five percent on your investment. For example, let's say you did the same purchase with only five thousand dollars down. That equates to ONE HUNDRED PERCENT annual return on your money! Real estate sounds pretty good now doesn't it? Even in a slow market!
Third: Find ways to increase the value of the property. Before you buy, ensure that there are improvements that can be made that will increase the property value. Be aware that a new roof will probably not increase the property value, nor will a new furnace or new windows. These are items that are expected to be in good condition and will not increase the value, although they may help in making a quicker sale. Items that will help increase the value are a coat of new paint, landscaping, updating kitchens & bathrooms and other cosmetics.
Fourth: Acquire properties at the right price. If everything went wrong from the time you bought it, could you still sell it and make money? Let's say you bought a property and the renovation costs were twenty thousand dollars more than expected. Is there still enough to "fire sale" the property and make profit? An experienced investor ensures that there is much more profit built into the purchase price than expected, simply to allow for the unexpected.
The serious, active real estate investor knows that it is always a good time to buy and always a good time to sell - if you buy right.