Wednesday, 25 February 2009

• When to Buy into Real Estate

  Icy Real Estate Markets, Confusion, and Investor Psychology

  Let's be straight: the real estate market is frozen over, has been freezing over for 2 years now, and could get even colder still. So when's the right time to buy into real estate? Or, put another way, do you try to guess when the bottom is, and wait until then to buy?

  Well, the psychics among us can sit around and try to guess about the bottom of the market, but the rest of us would be better off simply buying in low NOW. In the alternative scenario, you'll probably miss the bottom anyway, and then you still won't buy. So if you want to get into real estate investing and have been putting it off, don't let the market spook you. Here are a couple basic strategies that will allow you to buy low in any market, and sell high when the moment's right for you.

  Buying Low: Wholesale

  Five years ago, America was scrambling to buy. Now, they're scrambling to sell. It makes it a great time to start buying, but don't let the low prices make you complacent; you should always buy for less than today's market value, regardless of market prices a year or two ago. Buying wholesale means buying properties that aren't listed for sale to the public for under market prices, which can be done in one of two ways. You can buy from a wholesaler, who typically finds good deals, puts them under contract, and then flips the contract to an investor, which is an easier way to purchase, but your discount won't be substantial. Alternatively, you can try to find those terrific deals yourself, which can be tricky, but lucrative.

  Wholesalers are easy to find: call up the number on one of the thousands of "We Buy Houses" signs plastered around your city, and ask for a list of their inventory and pricing. You can find additional wholesalers by talking to a hard money, who may be a wholesaler themselves, or will definitely know a few. Buyer beware, however: wholesalers will squeeze as much money from you as they can, despite their weeping about how they're already doing you a favor. Negotiate hard, and wait for a deal that really works for you.

  Alternatively, you could try to find those deals yourself, by building a network of bird dogs. Contractors, tenants, handymen, local gossips, anyone who's in a position to hear about a house that needs to be sold fast: these are all potential bird dogs, so make sure they know that you'll pay generously for tips that lead to you purchasing a great deal, and make networking a number one priority in this business model.

  Selling High: Rental Agreements

  Buying low isn't so hard in a market such as this one, where everyone wants to sell, and prices are easy to negotiate downwards. But that doesn't mean you can turn around and sell, so how are you supposed to make money?

  The answer is not to sell, at least not right now. Find some good tenants, sign rental agreements, and make some cash flow every month on your lease. With the great deal you got, you'll have a low mortgage payment, while your rents increase along with the rental market, so you'll be sitting pretty indefinitely.

  The real estate market will turn around, whether it's next year, or the year after, or the year after that, but the fact is there's an increasing population in this country, and people have to live somewhere. Your rental properties will increase in value, while you collect that rental income every month, and the day may come when you decide you'd rather have a large payout from selling than the monthly income from the rental agreements.

  Or it may not, and you'll be earning income from those rental agreements forever. Regardless, now is the time to buy, because there are good deals to be found in any market, especially one as depressed as our current one. And one day, in a few years from now when you're contemplating selling, you'll realize that you've created some serious wealth through your careful real estate investing, and the decision is simply between which kind of income you'd rather have.

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