STRATEGIES FOR TODAY’S REAL ESTATE INVESTOR
The following is an article BY JEFF SCISLOW
Shared with his permission to help shed some light on today's market. The Weatherford, Parker County market is still going strong. However, the National Media continues to pound the industry with negative news. Therefore, I wanted to share some positive news for those who are interested in investing and the historical real estate record. Please let me know what you think about this by adding to my blog.
For those of us who own investment real estate and/or work with clients who do, the state of the market is presenting some interesting challenges today. These challenges include such things as increasing mortgage payments, decreasing valuations, and in some parts of the country increased insurance and property taxes. The pinch is on and is causing more investors to sell, even “dump” their properties.
As real estate investors, what should we be doing now? When will the market improve and current investors get some relief? Both of these common questions are difficult to specifically answer, but allow me to shed light on them.
The past year has been a tough one for many of us who own investment real estate, especially for those who own in markets that saw strong appreciation in 2003 to 2005. Some of those great gains are being depleted by the current market correction. Even if it’s just “on paper,” it still hurts to see valuations decline. A number of investors are seeing their negative cash flows swell as a result of increasing mortgage payments. No question, it’s getting tough our there!
Should I Sell Now?
This is the subjective question that can only be answered by each investor. Objectively speaking, I believe now is the worst time to sell. Many buyers have taken to the sidelines as sellers are out in great numbers. This creates a buyer’s market. A buyer’s market simply means that the buyers have the advantage. The buyers today are in the driver’s seat. They are experienced and know when and why to buy. Whenever a buyer’s market develops it is always the best time to BUY, not sell!
The Fear Factor
Why then don’t more buyers buy in a buyer’s market? Initially, one might think inexperience, but the primary reason is fear. Fear that prices will drop further. Fear that they will lose money if they bought now. All the “negative press” tends to get to the masses of people as they wonder, “Maybe the sky is falling, or at least about to fall.” Today, fear and uncertainty is keeping people out of the buying mode and creating this buyer’s market.
Selling into a buyer’s market assures you will sell at or near the lowest price. It books your loss as it provides the buyer a great deal. I’m not saying don’t sell in a buyer’s market such as this, but ONLY sell if you absolutely have to.
Again, don’t sell in a frantic emotional state; it is easy to do. Those who manage their real estate holdings prudently keep their wits about themselves and hold on as they move through a market correction have always come out well down the road. Those who buy in market corrections come out even better.
When Will the Market Recover?
This is nearly impossible to predict, but we can rest assured that corrections are only temporary, just as they have been in the past. Real estate prices will rise over time.
Is it Smart to Own Real Estate Today?
Owning real estate has many advantages, and of course, some risks. Nothing is risk free, but real estate provides some of the best advantages out there. These include tenants who help pay down our mortgages, governmental tax breaks that lower our tax burdens and offset other income, long-term equity build up on properties that have amortized loans, and of course something solid we can touch and feel. That is why people love real estate!
Over my 16 years as a real estate investor I have had setbacks in various real estate investments. I have lost money in numerous occasions when a tenant damages property or when I have had a vacancy for any period of time. Today, I along with many others am experiencing some losses due to a price correction, increased interest rates, increased taxes/insurance, and in some cases, poor property management. No matter how we look at it, a loss is a loss.
Losses vary in magnitude and never come at the right time. In fact, I experience some form of loss every year! One thing is for sure, as painful as it gets from time to time – I have stayed the course. I keep the faith and resist the negativity and fear. I have a choice; I choose to work through the challenge. As a result, I am far ahead of where I would have been if I had dumped my property when trouble arose, or if I had chosen not to continue to pursue real estate investing after encountering a setback. Overall, there are just too many positive benefits of owning real estate!
I’ll say it again – historically property values rise. Over the past 60 years there have been a handful of occasions where the media has hammered the real estate market with negative commentary. At those times real estate seemed to be the worst possible investment. But shortly after all the “bad news” had saturated the market, healthy appreciation returned. Every person I know would love to have purchased real estate back in history when the news was bleak, the buyer on the sidelines and the sellers out in full force.
Allow me to turn back the clock for a moment to drive home my point:
“The price of houses seem to have reached a plateau, and there is reasonable expectancy that prices will decline.”
-- Time Magazine, 1947
“Houses cost too much for the mass market. Today’s average price is around $8,000 – out of reach for two-thirds of all buyers.”
--Science Digest, 1948
“The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.”
--Business Week, 1969
“You might well be suspicious of ‘common wisdom’ that tells you, ‘Don’t wait, buy now.’”
--NEA Journal, 1970
“The median price of a home today is approaching $50,000… Housing experts predict price rises in the future won’t be that great.”
--Nations Business, 1977
“The era of easy profits in real estate may be drawing to a close.”
--Money Magazine, 1981
“Most economists agree… a home will become little more than a roof and a tax deduction, certainly not the lucrative investment it was through much of the 1980’s”
--Money Magazine, 1986
“Financial planners agree that houses will continue to be a poor investment.”
--Kiplinger’s Personal Financial Magazine, 1993
“A home is where the bad investment is.”
--San Francisco Examiner, 1996
With all that historical bad press, the real estate market has continued to appreciate despite the media’s doom-and-gloom reporting. Check out these numbers!
n 88% since 1996
n 340% since 1977
n 685% since 1969
n 2650% since 1948
The temporary market correction may have real estate investors nervous today, but the market will improve soon and I plan to be in the game and enjoy the rebound!
Jess Scislow is from Minneapolis, Minnesota. He owns dozens of investment properties in Minnesota and Florida and writes regular commentaries on the national and Florida real estate markets. His FREE commentaries are available under “Investor Alerts” on his Web site at www.America2Florida.com.
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