Profit in Real Estate Investing in a Down Market
With the all the bad news in the media ( and yes if you read my blog you know what I think of the media reports on real estate), I thought it would be a good time to discuss the real estate investing technique/strategy that works in up markets as well as a down market. And I must say now, especially in a down market.
There are many strategies to make lots of money in real estate investing. Some are more riskier then others. Anything to do with speculation is NEVER the approach that I adhere to. And yet contrary to the previous comment, I have many a fellow investor who made a killing in Alberta (for example) from 2005-2007. They bought espousing "an educated viewpoint" by telling me that growth was inevitable for Alberta because of all the infrastructure and corporate investment occurring over the next 10 years. And yes I must admit I ventured out there and studied the market. Yes there was growth in employment. Yes salaries were increasing. Yes corporate investment was way up. Even one of my biggest indicators for investing; housing affordability was at an acceptable level of 31%. However there was one problem. And I lost sleep over it many a night. And at the time I felt that I was "missing out on the real estate investing boat", but there was simply an inability for the property to produce solid cash flows. (**not all areas) And that was my point. Investing in a joint venture structure required that I must make a prudent investment choice on behalf of my investors. The one with the least risk attached to it. Investing where appreciation is the sole source of ROI ( Return On Investment) is risky. It was risky then, and it's risky now. That is, money could only be made from refinancing or selling the property outright. You would have to "suffer" with small negative cash flows for 6 to 8 months before you could refinance and show a profit. And that is my point. I asked myself the obvious "What if market values DON'T go up?"... How do you make money then?"
As I I've mentioned before, buying on appreciation is a speculative technique. You are buying on a FUTURE event occurring. There are no guarantees on future events.
Now I am in no way bashing Alberta. Alberta is a good investment in some areas. The same investors who laughed at me for not investing then are still hanging on ( and probably still laughing!!) . They made solid returns quickly. And are possibly hanging on because of increased rental income ( phew!!). At the time I just couldn't invest based on appreciation. I did that in 1989 and lost big time. I swore I would never do that again, so I am sticking to my guns. I learned my lesson then.
The point I am making is that real estate investing with a solid return ( above 10% cash on cash invested) based on cash flows ( not to mention other indicators discussed here) , will produce a strong ROI in a up market as well as a down one. In other words, the market value of the property is NOT the driving indicator for buying it. Yes investing based on cash flow is boring. Yes it's slow. Yes it's a pain, BUT it is the least riskiest. And in this day and age, investments with reduced risk are the way to go. It's always the way to go for me and is the technique that I advise all my clients on.
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For more info: (705)-812-1033
Email: mark(at) manainvestments com
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