How to profit from real estate investments in a soft and declining real estate market

How to profit from real estate investments in a soft and declining real estate market – Part 2 February 2, 2009

Posted by Jeff Nabers in : Money, Self Directed IRA Solo 401k, real estate , trackback

This is the Part 2 of series of posts on this topic. In order for this to make sense, please go back and read Part 1 first.

Real Investors have the following in common:

Buying single assets. What is happening to an entire market is less important than what is happening to the actual assets that you hold. Real investors are holding a portfolio of single assets that are performing well, oftentimes even while the entire market is doing poorly. This may be difficult to do in the stock market, but it’s much more feasible in real estate.
Buying real estate now. A few years ago, real investors were frustrated that blind investors were running up the price of real estate. This made it more difficult to buy real estate at a price that allowed for profit. Now that all the blind investors are fleeing from real estate, the remaining real investors are breathing a sigh of relief that they can get back to more profitable deals again.
Looking at comparable sales and comparable rents to analyze a residential property.
Seeking properties in any geographic location that provides opportunity for profit. Many real investors buy property outside their local area – sometimes even sight unseen. With reliable real estate agents, property inspectors, appraisers and local consultants, a real investor is more concerned with the opportunity for profit than he is with the necessity to drive by the property every time he goes grocery shopping.

Blind Investors have the following in common:

Buying entire markets. The growth of the mutual fund industry has taught blind investors to bet on entire markets and industries. This leaves them fleeing from real estate while leaving all of the best investment opportunities for the real investors.
Fleeing from real estate now. While the “buy any property” strategy was working, blind investors were in frenzy. Many of these blind investors have lost their shirt as real estate values have been correcting themselves back to rational prices.
Looking at comparable listings to analyze a property. Comparable listings don’t tell you what a property is worth; it will instead tell you what a seller hopes it is worth. Nevertheless, blind investors commonly look to listings to justify their hopes for unrealistic sales prices. I can list a small two-bedroom house in San Antonio for $100 billion today, but the listing price has no actual connection to real estate values unless it sells for that price.
Seeking properties only in their local area. A blind investor derives comfort from seeing the property around the corner rather than from understanding its profitability. This can pose a problem because oftentimes the most desirable areas to live in have the worst cash flow because of that desirability.

Today we unquestionably have a soft and declining real estate market in many areas of the country. Real investors are jumping with joy as the opportunities for real estate investment profits have become plentiful again. If some of these concepts are new to you, a little bit of reading can go a long way. A trip to your local bookstore will show you that there are many real estate investment books to choose from. Try to stay away from those focused on flipping. You may even want to be wary of most residential real estate investing books that have a copyright date between 2003 & 2007.