Investing Strategies for a Struggling Real Estate Market: Sunday Morning Thoughts 09 December 2012

What subprime crisis? Affordable houses are everywhere. (Photo credit: woodleywonderworks)

It should not matter if the glass is half empty or half full, it has something in it.

So in a flat real estate market, how can you make money?

Having control over a property and not owning the property can prove to be a fast way to improving your bottom line, but what about another option?

Becoming the bank, becoming a private lender; some of the benefits:

• You don’t own the property

• You don’t have to pay the property tax

•  You don’t do maintenance and repairs

•  No dealing with tenants

Private lending is a way to be involved with the real estate recovery, but without the risk that a property owner would have.

As a private lender you can invest a sum of money for a specified period of time, at a nice rate of interest.  You do not spend time mowing the lawn, or fixing the minor or major problems, you lend money secured by real estate and collect either a monthly payment or a lump sum after a specified holding period.

Being a private lender is a viable option in a buyer or seller’s market.  A private lender can lend money to buyers and refinance sellers, so it would not matter the type of market, your investment could appreciate.

In our current financial economy, the buyers are looking for money sources since many lending institutions are having trouble with lending.  Sellers are looking for private lending sources to refinance or sell their property.

No matter what type of real estate market, your investment can still earn.

For more thoughts on lending read our other articles.

Private Lending Retirement Investing Part I

Private Lending Retirement Investing Part II

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Separating a Winning Deal from the Alligator: Sunday Morning Thoughts 30 July 2012

Alligator eating Money Sculpture 14th Street – New York Subway (Photo credit: Annie Mole)

With so many great deals out there and even more on the horizon, how do you pick a winner?

Analyze.

For each type of invest there are hard and fast rules of analysis to apply.

For instance you would not analyze a residential deal the same as you would analyze a multi–family deal.  Even within residential evaluations, a two bedroom one bath is not analyzed the same as a five bedroom 4 bath.

But there are similarities of analysis for all properties. The A, B, C’s of evaluating properties.

So how do you tell the difference between an alligator and a profitable investment?

An alligator is an investment which someone tries to sell you on with the promise of making a profit somewhere down the line, somewhere in the future.  The typical time period is five years.

So while you are waiting for the profit period to finally happen, the investment costs you money out-of-pocket to hold on to.  This is also negative leverage with a negative return on initial investment.

It may be better to not make that investment.

In real estate if the cash flow of the investment does not cover the maintenance costs and debt service, then it is classified as an alligator;  A losing money investment.  Which means it would no longer be an investment but a liability.

When investing in real estate you can make an investment positive by having a positive return on investment, also known as a positive cash flow property.

If your deal does not bring you a positive cash flow from you take over the property then you may want to reconsider or restructure the investment.

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Inflation of the Dollar and the Effects on Real Estate: Sunday Morning Thoughts 08 January 2012

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When in times of inflation not only does the dollar lose value, but real estate values will almost always go down.  Now factoring in the housing crisis which has created a housing glut plus interest rates staying low to no movement upward, this is possibly one of the best times to invest in real estate.

Times only look bleak, if you chose to place your money in a mattress, instead of having the dollar work for you.  There are many deals and duds in the real estate market of today.  But how can one navigate and discern what would be a good, great or bad investment.

Location, Location, LOCATION.

This really means to know whether or not the real estate investment is in a great location for its specific type.

For example, you would not open a night club in a family oriented neighborhood; business would probably never take off the way you would want it to.  Another example, you would not open a grocery store in a warehouse district where houses were not close by.  Nor would you consider opening a nursery school within 5 miles of a state prison.  Not too many people would build a multi million dollar mansion in an area where the neighboring houses were valued at $100,000 maximum.

The aforementioned are just not sound investments.

Considering the location for the purpose of the real estate, should be the leading factor in evaluating and moving forward with a purchase.

So in our current economy, which may see further devaluation of the dollar and a subsequent falling of real estate values in some areas, where could someone invest their money to have a decent return?

To be able to “play” the stock market, one would have to know a great fund manager, stock broker or be skilled in the nuances of the stock market.  For real estate making creative deals and using creative financing can yield a worthy and profitable return.

Predictions for 2012

The New Year is upon us, what will it hold in store for us?

In short Inflation, Migration, and a steady Housing glut.

2012 will not be as bleak as some economist and the followers of the 2012 countdown/ Aztec Mayan calendar have predicted.

The cycles of the past indicate that there will be a worsening in the stock market after about the first 5 months of the New Year.  This is based on the cycle of the Depression era.  The market is currently acting in the same way as it did during that time.

But of course we all know “this is the time to become a millionaire”; only if you know how to invest.  Investing in an IRA is always a good idea; your money is earning interest tax-free.  You do have to watch the fund that you are invested in, if it is a loser then you will have losses and eventually no retirement cushion.  Most funds follow the S & P so you could stand to earn a very small amount of interest on your money.

With the debt ceiling raised and the debt steadily rising we are headed for more inflation than we may be able to tolerate.  So if you have all your money in the US dollar, such as a savings account or money market account then you are invested in the dollar.  Translation, if you save $50 dollars today that $50 will be worth less in the inflated future.  So having money in investments, such a gold, silver, and yes real estate will help improve your bottom line.

With real estate there are two factors in the coming year which will help to prove an investment sound or unsound.  Migration patterns of our older Americans and increasing foreclosures.

So with inflation and real estate lowering in value, and credit still tight it means people will be trying to gain ground that may feel like it continually slipping away.

It does not have to be bleak.

With correct positioning in profitable markets and having a diverse portfolio the storm may feel like a sunshiny day in a tropical paradise versus a Tsunami.

So remember the New Year will be what you make of it.

Print Your Own Money Invest in Real Estate: Sunday Morning Thoughts 7 November 2010

Investing in real estate can be like having your very own printing press.  First you load the press with the type of money you would like to reproduce, small investment to get your feet wet, or something larger which will make a greater profit.  There are multiple upon multiple ways to purchase, maintain, and have passive income in real estate.  Which ever proven strategy you use, investing in real estate can be very profitable.

Becoming a private lender is a good way to earn passive income without taking a great risk.  The property you are agreeing to finance should already be generating an income to sustain the payment, maintenance, and incidentals.  And the loan to value should not be any greater than 70%.

Real estate investing can be a safe alternative to the volatility of the stock market.  Real estate values do fluctuate but not as much as in the stock market on any given trading day.

Being a private lender you have the security of having your investment being backed by profitable real estate and secured by legal documents.  Documents such as being named as lender on insurances, title, home, hazard policies.  So if the investment should burn down to the ground your money is not lost. 

There are many types of situations and properties a person or persons can lend on.  It could be a Single Family Residence (SFR), multi-unit such as duplex or apartments; an office building, medical or retail, or even a triple net lease.  A triple net lease is for larger companies to occupy a property, such as a Starbucks, or Costco, Jack-in-the-box, CVS pharmacy, business of these types do not always own the building they are occupying.  It’s better for their bottom line and yours for them to lease the property they are doing business from. 

No matter which one or ones you invest in, you would be generating passive income.  What does this really mean; your money is working for you not you working for your money.  The money comes in the form of equity in a property because the loan amount is no greater than 70% of the value of the property. 

The lump sum, quarterly or monthly payment, however you chose, will be a passive income since you do not have to punch in on a time clock to earn it.  And it does not matter if you do or do not show up, what matters, is that you do invest. 

Depending on how you invest, you may receive tax breaks.

So if you do nothing then you will continue to have what you currently have.  If you chose to invest in real estate then you could have a better return than the current money market account, or CD.  Ask yourself, would you prefer to keep your investment money safer in a bank account or CD and earn a possible 1.5% or would you like to invest in the stability of real estate and earn up to 8%.

Each one has a risk which risk are you willing to take.

The Real Estate Investment Scam

Image via Wikipedia

Yes we were all scammed by predatory lenders; the economy along with the housing market, ruptured horribly.

As we are now trying to steady our feet some are touting out how real estate is not a good investment, this is the new scam, misdirection.

Why invest in real estate now?

Warren Buffett said: when others are greedy be fearful…

People were gobbling up all the real estate they could with the subprime loans, jumping into the deep end of the pool without any basic knowledge of how to float let alone compete in a race they had never trained for.

Many investors as well as home owners bit off much more than they could chew, which resulted in our current housing slump.

So, while others were greedy those in the know stood still, watched, and waited.  What everyone saw in the news “Housing bubble will burst”.

 

The housing and commercial real estate bubbles have both burst.

Warren Buffet:  When others are fearful be greedy.                                               

Many investors have called our current down economy the perfect storm.

Bargains Everywhere, America on Sale!

 

The housing and commercial real estate glut equals much lower prices on once coveted real estate.

Houses people once could not afford are now priced at half or less, but some of those areas are now less appealing due to having more vacant homes than neighbors, the appeal for the areas will return as new owners move into once vacant foreclosed homes.

If the past has taught us nothing, it has shown us things will come around again and again.

After the housing bust of the 90’s, people purchased homes that were bigger for the same price or lower than their current residences–more rooms, more square footage, and more space- for their families.

In this market we have a lot of “sideline” buyers, people who were priced out of their preferred areas, and now can afford to buy.  So just because the housing credit is due to end on 30 September it does not mean people will stop buying real estate.

First we had the rush, now the slow down, after 30 September will be the step up.

People will step-up to buying foreclosures but only in areas were there are jobs.  New housing will also find it’s niche buyers, most people love new, never been used before.

Commercial real estate is one of the best real estate investments at this time.  Many people bought investment real estate such as apartments without understanding the pitfalls of commercial investing.

Many newbies decided to buy multi-unit apartments and would manage it themselves from a few states away.  Not a good idea.  Managing apartments means you are customer service, maintenance, salesperson, and problem solver.

For those with low maintenance apartments and tenants self-maintenance is a good option.  But that’s not the case in a majority of scenarios.

One of our recent ventures is a foreclosure, a 42 unit community in a desirable part of Fort Worth, Texas.

The original owner was an investor from California, two states away, who decided to manage the property himself.  We will call him Buster.

Buster did not check references, nor did he do a credit check, etc. before approving his tenants.  Buster found out the hard way, approving any and all applicants can lead to a negative cash flow.

The better tenants began moving out in the droves due to a lack of management, complaints going unheard; people expect a response and a solution ASAP.  Complaints about leaky sinks, light bulbs blown out, tubs slow to drain, and or problem toilets should be looked at as soon as possible to keep it from becoming a bigger problem in the future.

Without paying tenants, Buster’s investment apartments became a money pit, in short he busted.

Buster was not the only new investor to find it challenging to maintain so many units.  Others have fallen with pretty much this same type of scenario.

Not all commercial foreclosures are lack of maintenance issues; many investors are having issues with the refinancing of their loans.

The credit crunch strikes again.

 

This is why Private Investors are so very important to our economies recovery.  It does not take an extremely large investment to become a private lender.  The returns on investment may out perform the stock market, depending on your current investment strategy.

Join the list of private investors subscribe to the blog or sign up at our website.

 

Our Turtle Economy

As our American economy is turtling along, the European’s are experiencing an economy of marked growth, albeit small, as our stock market has seen its third bad day in a row the European’s are experiencing positive trade.

For France the growth for the second quarter was from consumerism, for Germany the rise is from exports.  The United Kingdom is also seeing an improving economy.  But most of the economists of said countries seem to be surprised by the improvement in their economies.  Russia’s second quarter finish is also showing growth, so what is happening to the good ole’ USA?

The short answer, lack of consumerism, credit, and jobs our countries biggest economy drivers.

On the horizon, the Federal Government will be making it easier for businesses to have credit lines and tax breaks which trips into hiring and thereby moves into a more robust consumerism economy.

With the new changes in banking and credit lending the economy will continue to experience ups and downs, mainly due to our basic nature as humans, we resist change but change does happen then we adapt.

In the future we will see housing demand being more robust and possibly experience a housing shortage, a shortage which may cause many areas to appreciate considerably.

So now would be the time to invest in real estate, residential and commercial.  The sidelines are full of those that will never take action, but action is required in this economy.  Don’t let it pass you by invest now although things may look bleak a new horizon of improved change is on its way.

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