We have all heard of someone losing money on real estate right?It is no surprise that market doesn’t go up continually forever. That would be great if you already owned a number of properties, but unfortunately, that isn’t the way the world works. The real estate market moves in cycles based on supply and demand. There are a number of ways to make money in any market whether it is going up, down or sideways but you have to be strategic in how you buy. Let’s look at few.

1. Speculation vs Sophisticated Investing: First of all you have to always look at who you are talking to. Is it a sophisticated real estate expert that owns multiple properties or someone who hasn’t had much experience such as a friend or relative or co-worker that may have bought hoping for appreciation? Someone that purchases a property hoping the market will go up is called a speculator. In a sense, they are gambling. Make sure you are talking with an expert that treats investing like a business and looks the demographics, economic indicators and a long term perspective.

2. Target Area: The second thing you have to look at is your target area. Two areas in the same city could have two very different market places. One area may have lower prices with lots of turnover and many properties listed at all times, while another area could be more expensive but be much more popular with fewer properties listed and higher demand. Also, is the area close to transportation or off the beaten path. Is it on a quiet street or backed onto a busy road. The location and your target area can have a major impact on your cashflow, tenant profile and future appreciation.

3. Time in the Market: Third, ask people who have lived in the same home for much of their lives. Maybe it’s your parents or a neighbor. What is it worth now compared to what they bought it for? Some investors preach that it is not timing the market that counts but time in the market. So don’t wait to buy real estate, buy real estate and wait!

For the majority of people, real estate is one of the best investments they ever made. We cannot control what will happen in the future, but we can continually study the marketplace, educate ourselves on why markets behave the way they do, and surround ourselves with the best and the brightest people that specialize in the field. Based upon detailed research and history, buying a good positive cash flow property in an economically sound region in a targeted area will provide a good return on investment over time. If the market does not perform as well as anticipated, the investment is still supported by cash flow and mortgage pay down. Even if the property never appreciates, eventually the mortgage will be paid off and now the mortgage money will be going into your pocket instead of the banks.

Many people think this is ridiculous, however, you may already be doing this without knowing it. When you buy real estate, you will typically have a mortgage in which the bank is acting as your money partner. For example, if you contribute 20% of the value (downpayment), they will provide the remaining 80% of the value in return for repayment of the loan plus interest. If your property appreciates in value, it appreciates on the full 100%, not just on the 20% you put in. In the end, the bank doesn’t ask for any of the appreciation on their 80%. This is what is known as leverage. When a market is appreciating, you are using the banks money to make money. Try asking the bank to provide 80% of a stock. They will look at you like you are crazy.

The only way they may consider this, is if you back the loan with a hard asset such as real estate. The bank invests as your partner in real estate because it is a tangible asset that is proven to be secure and holds value over the long term.

A: Did you know that most millionaires either hold their money or make their money through real estate?

It is proven that real estate investing can provide a great ROI (Return on Investment) and is a great vehicle for long term wealth creation. When done right, it can provide;

1. Control - Increase cash flow and/or value by fixing it up, raise or lower rents, advertise and pay off to lower your risk.

2. Monthly cashflow -Extra money above all costs

3. Appreciation - Increase in land values over time

4. Mortgage paydown - Build equity through a forced savings plan

5. Tax benefits - Materials, maintenance and depreciation write-offs, capital gains (only taxed on 50 % of the gains when selling)

6. Leverage – Make money using the bank’s money. You only have to contribute 1/5 of the purchase price and the banks loan you the rest. The bank is a great partner as they just want a small return for lending you the money, and they do not ask you to pay them any of the appreciation.

Many people do not realize that real estate has an internal rate of return other than what you read in the paper such as, real estate prices went up 3% this year. Remember that you realize the gain of 3% on the entire purchase price, not just on your down payment. Ex: if you have a property worth $200,000 and you put down $40,000 to buy it and then the property goes up 3%, the appreciation is $6,000. $6,000 appreciation/$40,000 of your money = 0.15 x 100 = 15% ROI. But that’s not all, since you have tenants paying you rent above your costs every month, you can also add in mortgage paydown, cashflow and tax savings. So when real estate goes up 3% you have a much higher ROI due to the internal rate of return.