how to profit in a downward trending market? - Posted by Jason

Posted by Tim in AR on April 20, 2006 at 16:20:49:

Back in the late '70s when rates were double-digit my pop and his partners bought foreclosures for pennies on the dollar, rehabbed them, rented them, sold them when rates declined and make baskets full of money. I think the key is to be sure you are happily living in a house with a 6 percent note and then go nuts investing when rates sky. There’s always a way to make money on real estate.

how to profit in a downward trending market? - Posted by Jason

Posted by Jason on April 18, 2006 at 19:18:27:

I know this is going to sound like a newbie q… but…
In this market, it seems like we are trending towards a big increase in foreclosures… here in NH, many are going back to the lender, b/c the homebuyers are not are common as they have been…
I have been investing for 6 years, and work many in the preforeclosure market - but I am getting spooked about how many are going back to the lender.
FOr those who experienced/are experiencing a market that seems to be declining/flattened – what is the best way to profit and protect yourself from what may happen (if the market decreases, and values dip over the next 3-5 yrs)?
Sorry to sound like a nervous nelly – but I am not used to this kind of market… I am used to increasing ones…

Re: how to profit in a downward trending market? - Posted by Sean

Posted by Sean on April 21, 2006 at 14:32:00:

Down/Slow market you follow the rules that have been for real estate forever up until about 1970s when the Carter Debacle caused housing prices to go through the roof because it was the only place you could park money without being hammered by inflation.

That is, ONLY BUY IF ITS A DEAL! Never buy banking on appreciation… unless you are willing to lose your money… that’s speculation.

Buy cheap, make sure that when you buy you have at least 3 VIABLE and realistic “outs”… Buy it so cheap that if you had to fire sale it for 75 or 80% of its “value” you’d still be a winner.

Never buy if it can’t cashflow… you may not plan on being a landlord, but in a down market, you might honestly not find a buyer like you think you will going in… better make sure rents, or rent to own payments will give you enough $$ to keep you going.

Slow economic markets work completely different, a dollar is worth more to people there than in bustling economies and they will pay somewhat of a premium, but they won’t sell their souls… because they darn well know the house down the street will be up for sale next week and it won’t be overpriced.

You can still play all the usual games in this type of market, but you can’t play them the same way… Yes, I can charge a premium for a Rent To Own, but I can’t charge an insane one, because my competitors are out there doing the exact same things… I know a guy in my market who gets the asking price he wants, but he gives them 100% rent credit the first year… Now, you going to get top of the market rents on your rent to owns with no or just little rent credits with that sort of thing going on?

The best way IMHO to invest is just NEVER EVER EVER PAY TOO MUCH! There is nothing wrong with buying a property so cheap that when you walk away from the purchase you put cash in the pocket… when you are done rehabbing you refi for 80% and put even more cash in your pocket… you rent it out for a few years putting cashflow in your pocket… and when you finally sell, even bending over backwards to help a less than qualified buyer… you wind up putting even more cash in your pocket…

Think in terms of crock pots, not microwaves…

Re: how to profit in a downward trending market? - Posted by sutton

Posted by sutton on April 20, 2006 at 22:34:04:

I’m buying mobile homes for 1-2K and selling them “Rent to Own”. Affordable housing is the place to be right now, in my opinion. I have done mobile home deals in the last 30 days that now put $638 a month into my pocket for the next 48 months. I plan on doing enough to satisfy my monthly cashflow requirements. I would like to do another 12 and with a minimum of 300 a month that’s over $4,200 a month cashflow. Do that with a single family home…

Re: how to profit in a downward trending market? - Posted by jason

Posted by jason on April 19, 2006 at 10:27:20:

It should be easier to make money in a downward maket, imho.

Why is it that when stocks, re, or whatever are GOING UP, people buy. But when they are going DOWN, theyg et out, or sell???

Me no comprende!!

A downward market is comparable to a sale!!!

Re: how to profit in a downward trending market? - Posted by dutch

Posted by dutch on April 19, 2006 at 07:59:07:

Buy for cash flow and very fast flip profits only, NEVER count on appreciation. If you can cash flow after ALL expenses, realized and deferred, or you can get in/out very fast for a chuck of change, then the direction of the market has no bearing on your business, except to give you MORE opportunities.


Re: how to profit in a downward trending market? - Posted by Joe Kaiser

Posted by Joe Kaiser on April 18, 2006 at 20:38:10:


Welcome to real estate investing for the long term. Shakeouts happen,
and if you’ve been around for only 6 years, you haven’t really
experienced one of consequence.

But you shouldn’t worry or be nervous . . . that does you nothing.

Understand that we can’t predict with any certainty when that day will
come, but we can prepare for it by understanding the different ways
this game is played and being confident in our ability to switch gears
as needed.

What the market may or may not be doing, typically, is meaningless to
me. I know that no matter what marketplace I find myself in, I’ll be able
to figure out an angle I can bank on.

That being said, I have totally avoided answering your question.


Re: how to profit in a downward trending market? - Posted by Eric Woolhiser

Posted by Eric Woolhiser on April 19, 2006 at 08:50:22:

“That being said, I have totally avoided answering your question.”

That’s too funny, Joe!

But to answer the question, the fundamental truth of investing is that you make money when you buy not when you sell. Your protection in any market is to buy at a discount. If people (including the seller) agrees that the market is trending down, then offer less!

Dave Lindahl teaches us both to work in emerging markets (they are all around us), and invest in our back yard. Investing in our back yard means doing the right thing for the market. And in our area, that means quick flips and buy for cash flow if you can find it.