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…