Posted: Jul 24, 2007
Once again, during the past month we have been barraged by negative real estate news: Sub-prime woes, new home starts and existing sales down, prices declining, the worst is yet to come, etc. It seems to be in the news every day. The emotions run high during such a time as this and the tendency for a number of “investors” is to say “I’m getting out!”
The same often holds true with stock market investors. When the market goes down people sell and when the market goes up they don’t. In the end they lose. We all know we’re supposed to buy low and sell high. The opposite is true much of the time with most mainstream investors. Why? Because of emotions – primarily fear and fear of loss.
The same can hold true with real estate if we let emotions rule our thought process.
When more people are selling than buying the supply goes up, the demand down and prices fall. This is what we are seeing today in the overall real estate market around the country. Why would an investor sell at this time? Emotions.
If “buy low and sell high” makes sense, then buying in a down market is the best time to buy. Why don’t more investors buy when the market is down? Emotions.
Just like it is difficult to see your stock decline in value, the same is true with real estate. It is even more difficult to see the value of real estate decline because it is so rare to see housing prices drop. We just happen to be in that part of the cycle right now. There are many contributing factors to the decline; one which caught 99% of nation, experts included, by surprise.
So now what? We wait it out and know that historically prices will increase once again. When exactly is only an educated guess. Some say early next year in 2008. Others say maybe not until 2009. The bottom line is that the market will improve again. Once it does, it will “feel good” again and the emotions will be under control.
If however, an investor dumped their property at the “bottom”, they will experience a different kind of emotion when the market recovers and prices are rising again. Long term this is the trend – upward!
Personally, I only purchased 3 properties for speculation – for the purposes of reselling once the property was completed. Those are the 3 worst real estate investments I have found myself in.
The others are doing well, depending on when I purchased. The ones I bought last year for the long term are down some in value today, but long term they will do well. Why? Because the fundamentals of the real estate world. Demographically they will be in demand. Maybe not right now today, but they will be in the years ahead. I plan to hold my long term property for 5 to 10 years. If values are not higher in that time frame, I would imagine the economy will have fallen off a cliff as well.
Property I have owned for 10 or more years are cash cows! Those are the ones that have had their mortgages paid down by the tenants! Were those gravy trains created overnight? No way. It takes time and patience. Have there been tough moments? You bet!
My advice to all real estate investors is to try to take the emotion out of your investing and focus on the long term. The market and news today travels so fast and is so prevalent that it actually appears worse than it is. Not to say the market is not bad today, but at the rate and with the repetitiveness that we receive the messages – WOW! It is no wonder we get emotional.
If you have negative cash flow today, look at it as though you are contributing to a 401k or your retirement account. That deposit goes toward reducing mortgage debt (if you are amortizing) and it preserves all the tax breaks you receive as a property owner! In time rents will increase and your cash flow will move into a positive position. Again, this takes time. Real estate is not a get rich program.
Is real estate investing right for you? If you are swept about with emotion with each news release, then the answer is no. If you feel you must bail out now that the market is in a correction, then the answer again is most likely no.
Risk assessment, something we have covered in each of our seminars over the past 3 years, is important. Can you afford to cover the cost of your mortgage payment if the tenant moves out and you are vacant for a month or two? Can you afford higher payments if you purchased with an adjustable rate mortgage and the payments go up? Can you write a check to cover property losses due to a bad tenant? If the answer is yes, then you are on the right track to profiting and building wealth from real estate investing.
Who is buying today? Very shrewd investors that are not moved by emotions. Ones that see the value and are seeking out opportunities that afford them outstanding prices. Ones that are capitalizing on the emotions of those who are dumping property today.
These great buys can come from other individual sellers, builders or developers. They can be found in many areas in Florida, in Minnesota (where I am from) and from many, many other cities in the USA.
In our search to find these excellent buys for our investor base, we focus on the fundamentals and demographics. Florida will recover faster than Arizona according to the latest forecasts and much faster than Las Vegas.
The latest recovery projections show Tampa / St. Petersburg to be the fastest and strongest recovery area in the country. The annual appreciation forecast is expected beginning 1st quarter 2008 and at an annual rate of 10.6%!
Phoenix is expected to turn around by the 4th quarter 2008 and at an annual rate of around 7%. Las Vegas is not expected to turn around until the 4th quarter of 2009 or early 2010 and at an annual rate of about 5%.
For those in the Twin Cities of Minnesota, where I make my home, our market is expected to begin recovery in 2008 and at an appreciation rate of 2-3 percent. My personal sales locally have been improving all year and I expect to have an excellent sales year in 2007.
All the demographical reasons people are moving there will continue. Once the buying picks up I expect prices to make a modest jump – overnight so to speak. I expect, that of the 10.6% annual appreciation figure, we will see roughly a 5% jump in the first 2-3 month period.
As always, we are here to assist you and answer your questions. We are watching the Florida and Minnesota markets closely and uncovering excellent buying opportunities!
Commenting is closed for this article.
Our nation is at an interesting juncture. Our economy and banking system is under incredible pressure; one of a serious nature.
The mortgages which were written between 2004 and 2006 paved the way for the collapse in real estate prices, which in turn has been pulling down all other areas of the U.S. economy. Currently there are over 1 million foreclosures across America. The frightening fact is that there are more than 6 million mortgages that are 30 days or more in arrears! This is potentially more serious than anything we’ve seen yet.
Posted: Sep 25, 2008
We are in the midst of tough real estate recession; the worst this country has seen in decades. Real estate prices in some areas have fallen to the point where many people are paying more on a mortgage than their property is actually worth!
Posted: May 14, 2008
©The Scislow Group, Inc 2007 All Rights Reserved
