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 es-tate 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.
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.
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.
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.