I spend a lot of time talking and writing about real estate. I spend money and time investing in real estate. However, I also invest a great deal of my time in reading about real estate and following market trends. There is plenty of valid advice and news out there about specific market areas, mortgage rates, housing affordability, renting versus buying, and other concepts related to real estate ownership and investing.
Gloom and Doom
Without getting into finger-pointing and linking to specific websites and articles, there's been a lot of writing about the U.S. economy, a forthcoming economic crash, and getting into "real tangible assets." One article from back in 2011 on a respected site puts forth the idea that there is a coming financial crisis in this country (going on three years later... not yet). The article advises getting into tangible assets, but spends a great deal of effort in describing why real estate isn't... well, REAL.
These far-out prognosticators of doom are constantly telling us that the end is near financially. We're told that paper money will be worthless, and we'll need to barter to feed, shelter and clothe ourselves. You can read this in a lot of places, and there are people hoarding, or "prepping" for disaster, including buying gold and silver for purposes other than an investment hedge. Where I have a major problem with all of this doomsday stuff is in advising getting rid of all real estate. Besides getting rid of my home and then having to barter for shelter, there are some very real reasons why I would not want to be out of real estate moving forward.
The doomsayers are telling us that even a property purchased with cash is not a tangible asset because its value is based on competing buyers who need mortgages for leverage. So, if paper money crashes, then mortgage values crash, and that means that homes will have no value. Of course, this requires ignoring the basic human need for shelter. We would also have to ignore our increasing population and a growing need for housing. Every bit as necessary for sustenance as the ability to buy/grow food is the necessity for a roof over our heads. To imply that not owning a home is better isn't logical.
I've been investing in real estate for many years, and I've seen market cycles come and go. What I haven't seen before is the situation that we're in today. The crash that began in 2006 was unprecedented in our real estate market history. Sure, it was a "bubble," in part brought about by speculation and poor lending practices. People were competing to buy homes they couldn't afford with money that was too easy to borrow. When it all came tumbling down, it wasn't a pretty sight.
Instead of crying "the sky is falling," I want to tell you about the current real estate market cycle and why it's the perfect time to jump into real estate for a residence and particularly for investment opportunity. First, it's important to understand the nature of cycles and how opportunities change depending on where we are in a market cycle.
Let's look at three strategies for profits in real estate, where in market cycles each might work for you, and why it's a unique time for real estate investment right now.
• Wholesaling - this is a short term (quick turnaround of 30 days or so) method of investing. The wholesaler controls or buys a property and resells it to another investor at a profit. Works at the top of a cycle, in a downturn, and in an improving market.
• Fix-and-Flip - somewhat longer term (up to around 120 days or so) method of buying properties, rehabilitating them, and selling them to another investor or a retail buyer. Works best in a rising market so you have time to do the improvements and prices are rising. Definitely not for the market topping out.
• Buy-And-Hold - this is the long term (years) strategy of buying properties as rental units. Works at the bottom of a declining market and throughout a rising market.
Throughout history, no matter where in a cycle a real estate market might be, one or more of these strategies will generate profits. However, today we and most analysts can agree that the market has bottomed out after the crash. It's improving and prices are rising in every regional market. Now check the bullet points and strategies above and you'll see that all three are profitable in this market state; bottomed out and improving.
Even more amazing is that this is the largest crash ever recorded in the U.S. housing market, with home prices down more than 30 percent overall, and as much as 70 percent in some markets. With that deep of a decline, the expectations are for a major rise in prices and improvement for years into the future.
Those who listen to the gloom and doom simply will not be competitors! Let the doomsayers check out the markets in a couple of years and let's see who is right here ... that's my challenge.