5.5 Reasons That Auguts 2009 is a Bad Time to Invest in Real Estate

I have been avoiding this topic for a long time. After all, this is a blog that supports a company that provides bridge loans to real estate investors and it's in Clear Day Capital's best interest to make sure that people keep investing. But the truth of the matter is that this is a bad time to invest in real estate. Here are the facts:

1. Everyone is getting out of real estate, so you should too. That's right, in a democracy where every vote counts, the majority rules. So as realtors, loan officers, title officers, investors, and everyone else is dropping like flys, you should get out or stay out!

2. Real estate prices are down. You need to wait until prices are up a lot to make sure that you are following the upward trend. Even though property values are low and on sale, wait until prices go up quite a bit. Real estate isn't like stocks or cars or other things that you buy. Buying high is what most people do, so you should follow the majority (see reason #1.)

3. Real estate volume is down even further. Again, if no one is buying, why should you? Whait until volume goes up and it becomes more of a seller's market and then you can feel good about making offers near the asking price. Better yet, you'll be able to make lot's of low-ball offers that get rejected because people have more confidence that they'll be able to sell their house.

4. Unemployment is up. This means that everone has stopped buying houses and no one can afford to pay rent. After all, going from 3.0% unemployment to 5.7% unemployment (in Utah) means that everyone is out of work and no one has a paycheck coming in. We know that the government lies and unemployment MUST be so high that the American way of life has ceased to exist. I am not sure where people are living, but it must not be in houses or apartments. Has anyone checked on RV park occupancy rates lately?

5.5 Home foreclosures are ready for the "second wave." Home prices are going down even further. Forget about buying for cash flow long term, forget about negotiating a good deal now, forget about amortization, forget about owner financing that will allow you to own dozens of houses without qualifying at the bank. Just focus on equity and remember housing prices never bounce back.

5.5 Leave more for me & my friends! This is the best reason of all to stay out of the real estate market. We are having too much fun and I don't want competition for houses to go back up to were it was two years ago!

My suggestion is that you wait for the nightly news to tell you that it's a good time to invest in real estate. They allways seem to have their pulse on the market. Look at the great job of investigative reporting they did to warn us about the housing bubble.

There are lots of other other good reasons to not invest. Can you think of some and share them?

Long Term Real Estate Profits Through Property Management

Someone once said, "If you don't manage properties well, then you are just a custodian for the properties until you sell them at rock-bottom prices to the next guy."

The goal of a good property management company is to maximize property profitability through maximizing revenue and keeping costs as low as possible. The company also gives property owners complete access to property and tenant information. This can be done through on-line software that is available 24/7.

Whether you pay someone to manage your property or do it yourself, if you are going to keep properties long-term, you need to understand what it takes to manage a property.

Tenants

Each property is an asset that needs to be maintained and improved on over the lifetime of the property. The cost of maintaining and improving the property can vary greatly, depending on the tenants.

Screening for great tenants can take time and energy, but experienced landlords say its worth it to avoid evictions and property damage. Some owners look at tenants as employees that safeguard, maintain, and utilize the property

Maximize Revenues

Revenue maximization is a function of keeping rents high and occupancy rates high. Occupancy rates are a function of keeping tenants, attracting new renters when properties become available and minimizing the amount of time between move-out and move-in.

Revenues also come from collecting late fees and enforcing lease contracts.

Minimize Costs

Costs are impacted by tenant turnover, repairs, ongoing property maintenance and tenant delinquencies and/or evictions. Turnover costs (the cost to get a house rent-ready) are significant, even when the tenants are clean and take care of the property.

Repairs paid by property owners can be kept down through good lease contracts and proper tenant screening. Ongoing property maintenance is unavoidable and strong relationships with service providers keeps costs down.

Obviously keeping delinquencies and evictions to a minimum and preventing these costs is best, controlling the costs when needed is critical.

Information Systems

When using a property manager, you should have access to all of the information that pertains to each property you own: property ownership documents, tenant lease information, revenue owed and collected, and costs. Reports can be scheduled to be sent automatically by e-mail. They can also be generated on an “as needed” basis.

If you are managing the properties yourself, the need is the same- you need to know if you are making or losing money on each property.

What about your properties? Any "tricks of the trade" that you can share?

Real Estate is for Patient People

Peter Fortunato, a renown national real estate investor and trainer, teaches that investing is "a thinking man's game, not a running man's." As I thought of that statement it occurred to me that patience is needed as well. Here are some examples:

Looking for Diamonds

A real estate investor who specializes in fixing and flipping real estate is looking for a diamond in the rough, that is REAL diamond, not a fake. Robert Allen, the author of "Nothing Down", talks about how difficult it is to the untrained eye to find one diamond in a group of cubic zirconium. However, he can teach how to spot the diamond with one simple trick: Turn the stones upside down onto its face. Then the difference between the stones becomes obvious and the real diamond reveals itself.

In real estate there are a lot of properties that report themselves to be diamonds, but only you can make that determination. Does the property meet YOUR requirements to make a profit? You may need to go through dozens of offers before finding the diamond and deciding to execute the transaction.

Once you do purchase the property it typically takes 3-6 months to fix, resell, and get paid. How many people working for a paycheck a willing to wait 3 months to get paid?

The 30 Year Bamboo

Another way to invest is to buy and hold real estate. In that case, even more patience is needed. This is a lot like a species of bamboo that lives along the shore of the Bay of Bengal. It blossoms once every 30-35 years! Think about owning real estate by paying down a 30 year mortgage. You may have cash flow along the way, along with depreciation benefits to reduce your taxes. This is truly a get rich slowly scheme that requires time.

Why Proceed with Patience?

There are millions of people in the United States that are running away from investment real estate right now. They got involved at the top of the market and have lost a lot. Many were looking to get rich quick, did not examine the risks, look at downstream consequences, or did not educate themselves.

The most successful investors I work with have 1-3 transactions at a time and always finish what they start. There are a lot of details that need to be taken care of, a lot to learn, and a lot to do. The successful investors identify what they want and then patiently proceed to get it.

Be Prepared

Once you know that you have found what you are looking for, you need to respond quickly. There are a lot of people looking for the diamonds. Are you ready to:

• Write offers the day a property goes on the market?
• Close quickly- 1-2 weeks, better yet in 1-2 days
• Have professional resources that can help you structure and fund a deal?
• Deal with the property AFTER you acquire it? Fix up, rent it, sell it, etc.?

Work with a Partner

One recommendation that I always have, especially to beginning real estate investors, is to try working with a professional real estate investor who has experience doing what you are trying to do. This lowers your risk tremendously and you can learn how to work on your own by participating and gaining experience over time.

Are you a patient person? Have you always been? Can you think of someone who has rushed into real estate and been burned?