WIN IN EVERY REAL ESTATE MARKET

By: Mark Frentz
www.akerahomes.com
mfrentz@akerahomes.com

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Before I Begin

If you are thinking of investing in real estate you need to fully understand what you are getting into. The more you have prepared beforehand or can rely on by joining with and experienced investor, the better you will manage your risk and the more money you will make for the first day of investing. There are two aspects of real estate that most people I meet don't typically understand when thinking about investing in real estate. The first is that you need a ton of your own money to invest. This is simply not true. It is true you need money, but you can also help other people invest and provide a fantastic service for them by providing great returns and use this service to help build your own portfolio. The better you take care of others, the better you will take care of your own future. The second aspect that many people do not understand is that you only make money in real estate when the market trends up. This is absolutely NOT TRUE! In this post I will be growing your understanding of how to make money in real estate no matter what market you are in.

The Basics

To be able to determine which strategy you are going to pursue at any given time you need to understand where you are in the market. For the sake of simplicity and keeping this post short there are 4 basic parts to a market (you can see this from the picture above):
1. Recession is sometimes called a buyer's market and takes place when the market is down trending 
2. Recovery is basically the bottom of the market where it provides a solid base from which to grow for a while
3. Expansion is often called a seller's market and is when a market is growing in prices and building on the momentum gained from a market's recovery
4. Contraction is basically the top of the market where prices are about to turn downward (supply has grown beyond the demand for properties)

Types of Real Estate Transactions

While I won't go into deep detail here (I will explain these concepts in a later post). You need to come up with a basic real estate investing strategy before you begin investing. Where are you going to make the bulk of your money? There are two basic strategies when it comes to making money in real estate. The first is long term buy and hold strategies and the second is shorter term flipping strategies. Here are some examples of both and what you can do with them in different markets

1. Buy and hold

This is a long term strategy (For me a buy and hold needs to last over at least 7 years) and you can help yourself in this strategy no matter what the market is giving you
     -Recession: This is the time to purchase new properties at a discount! Even though the market may not be at the bottom yet, the money you are saving in a great deal and the security of knowing you got a great deal will make up for it in the long run. It isn't the person who hits the exact bottom with a purchase that wins, it is the person who consistently gets great deals, period.
     -Recovery: Paying attention to this end of the market pays off as well. If you have any capital left, now is the time to purchase another property or two. While the deals aren't as good as in recession, you can do something quick because it is most likely that you won't get a better chance for another 7-10 years or so. It's time to shore up your portfolio and get ready to focus on managing properties.
     -Expansion: The opposite, in many ways, to a recession market. Now is the time to refinance and/or sell certain properties you currently hold in your portfolio. Why would you sell at this time if your strategy is to hold? Because you may have started your portfolio with a single family home and want to pick up a suited place when the market trends down next time. Another example is offloading suited properties (maybe a few) and then getting in on larger multi-family properties later on (possibly a building with 8 or more doors). Expansion is also a good time to lock in some of your good tenants for a few years if possible at fair rates and find better tenants in the properties that have had less than ideal tenants up until now because this market is usually mirrored in the rental/tenant market; many tenants and less properties to choose.
     -Contraction: Now is the time to simply refinance your properties. Make sure not to over-leverage yourself (See my post on cash flow), but also make sure you are pulling money out of properties when the money is good so you can expand your portfolio in the coming few years.

2. Flips

There are a few types of flips. The most often used are: purchase fix and flip, rent to own, and wholesale deals. I don't consider flips a valid type of investing because they fit better into a simple business plan; I see these as viable business strategies to put cash in your pocket or into buy and hold strategies, but these aren't technically investing for me because they are simply cash and you are basically only making money on 2-3 of the 9+ ways to you can in real estate investing. If you want more information on all the ways to make money when investing in real estate please visit the many posts I have, to date, on the various ways to make money in real estate (see: 'Why Real Estate is The Best Investment' on the right-hand side of this page under 'categories').
     -Recession: Rent to own deals, if the focus is about a 3 year option at least, can be done at this time because they take a little while to set up and the purchase of a property for good rent to own deals (discussion for another post) in the best interest of the tenant/buyer can be picked up at a great price. Wholesale deals are ripe for the picking at this time in the market. You can pick up fantastic deals and, as long as you have your investor pipeline set up, you can immediately turn them around to people looking for good buy and holds. I would recommend holding off on fix and flip deals unless they are larger projects you are doing on your own with little help from outside contractors because fix and flip deals need to be short term to consistently make good money. An example of a fix/flip that works in recession is an infill. For early stages of infills, this can be a great time to get into a property.
     -Recovery: Now is the time to really move on purchasing any type of flip. Every strategy should work if it is purchased at this time because you make your money in a few months from now (for the most part) when things continue in stability or begin increasing in market value.
     -Expansion: Early expansion can be even more lucrative than recovery, but this is now a time to be closing down your deals rather than getting into them. There is no single individual on the planet who can tell you what the market will be in 6 months. An example of this in the Calgary market is that we were gearing up for later expansion when oil prices tanked. This sent us very quickly into the contraction market stage and now we are in recession. Again, take what the market gives and don't get greedy. There is always more money to be made if you are patient and take what the market offers. There will always be another expansion... just wait for an average of around 8-12 years.
     -Contraction: If you have any flips in your portfolio now is the time to get rid of them, even if it is at a discount. You NEVER want to be holding a flip on the way down in a market because you will end up chasing prices the hold way. I have two real estate agents in my family and they have told me multiple stories of many people holding out for another $5k and because they were a little too greedy didn't follow professional advice and chased the market all the way down. These people tend to lose tens of thousands of dollars (one example was about $150k) because of their greed.

Tip: One way to consistently make money in real estate for many years is to 'always leave money on the table'. I will always choose to lose a few dollars today to make hundreds of dollars tomorrow. If you squeeze people out of every penny a deal is worth you will ruin relationships and end up with less deals in the future. Remember that 50% of a smaller pie is always more money than 100% of a big deal that falls apart.

Summary

The biggest reason I invest and encourage others to invest in real estate is it's versatility. You can make money in every market in real estate and you can make money in many, many ways in real estate (again, read my former posts on the subject of the various dimensions of real estate because it is too much to cover here). If you invest in stocks, precious metals, or  you have very limited options compared to real estate. From the people I talk to it seems like average mom and pop type investors would probably disagree with a lot I've said here. I've made sound arguments that any market you are currently in is a great market... you simply have to take advantage of your opportunities by investing in your own education or paying someone who knows more than you to help you out.




Here's to your future of risk-averse investing!

If you would like to learn more about investing in real estate please contact me at the email address listed at the beginning of this article or go to my website at: www.akerahomes.com/investing-in-real-estate.html