Real estate investing is tough at the best of times. What about the worst of times. Is it possible to invest profitably in real estate when the market is like it is right now?
The real estate market is in meltdown right now. House prices are plummeting, foreclosures through the roof, people living in their cars and houses selling for $1. I’ve been watching a lovely 4 bedroom home in Florida that is listed on eBay right now for a starting bid of $1.
Real estate investing success relies on a few simple parameters. Rising house prices and good rental returns. If an investor can secure a house that will rise in value over time and returns enough rental return to come close to covering the expenses of the mortgage and other holding costs, then that investor will, over time, make a profit.
Ideally the rental returns from the tenants should exceed the costs of holding the property, and it is then in positive cash flow, and the investor makes a return on investment both from the income from the property and from the capital gain as well.
It’s all pretty simple really. There’s dozens of real estate investment seminars around, however that’s the basics. If you buy a home for an investment, and the value of that home goes down over time, you’ll lose money.
If you’re making a loss on the rental return over time, you’ll also lose money unless you can sell that home in the future at a price that is sufficiently higher than the purchase price to cover the rental losses and make some return on capital.
Simple stuff. But hard to achieve, even in the best of times. When the market is good, like it was up until a while ago, you made money if you we’re a good real estate investor. If you chose well, bought well and tenanted the property well, you were in front.
Not any more. The basic premise of real estate investing is rising home prices. If you’ve got rising home prices then you’ve got a good chance of doing well. Buy just about anything and by default you’ll make money.
Now prices are falling.
So right now there are no real estate investment opportunities right?
Wrong. There are good real estate investment opportunities. But if you’re trying to find them yourself you’re almost guaranteed to fail. There are some professional real estate investors now who are trying, and if you’re a professional investor with significant real estate investment experience you may do well. Or you may well do badly too.
But if you’re beginning real estate investing now you’d be better to stay out of the market. Unless. . . . . .
Imagine for a moment.
A solid American public corporation, experienced in real estate investment. Well capitalized with a well thought out proven strategy for investing in real estate regardless of market direction.
The corporation invests in buying homes in demand. Not your McMansions that are on eBay right now, but the sort of houses that millions of working Americans live in right now, or need to live in. Basic properties that exist in their millions right over the US.
With sufficient capital it can buy hundreds of homes at a time. From government, charities or any organization that owns large numbers of homes in a single area. And because it can buy like that it can buy at way below market value. Hundreds at a time purchased in a suburb with all the right characteristics including high demand for rental properties and, in some cases a backlog of demand for up to 15 years.
Then it refurbishes those homes to a high standard. While doing so it spends money on the suburb building parks and playgrounds and community facilities. And within a period of time a suburb has been totally transformed. New community attractions, high quality homes that people want to live in. Suddenly everyone wants to live there.
Up to 40% of the profits are ploughed back into the local community.
Demand rises, people want to live there, both to rent and buy. The corporation has created it’s own capital gain, regardless of market direction.
And then it sells these properties to individual investors. No money down, loan provided, tenant provided with a rental guarantee. Immediate equity to the investor of around 15%. The investor owns the property and can hold it or sell it and keep 100% of the profits.
Now that’s successful real estate investing in a bad market. But it takes experience, commitment to a community and to the investors, and a solid background of real estate experience, and a lot of capital.
Sound too good to be true? Maybe it’s not.