If you are buying real estate right now, there’s an argument to be made you are either rich, brave, or foolish.

Every time I evaluate a deal, there is a better chance I will do nothing at all than take action.  Good deals are far fewer than bad ones, and I’ve made a lot of money in real estate NOT buying something.

With all of the low prices, distressed properties and desperate sellers out there right now, it is really tempting to start snapping up bargains.

But the wise move may still be to wait.   If you are buying real estate right now, there’s an argument to be made you are either rich, brave, or foolish.

You’re rich: You’ve watched as real estate prices plummeted. Now signs of recovery mean it’s time to invest. If you have the spare capital, you stand to make a lot of money in this market of incredible opportunity. You can afford to gobble up the discounts and hold them for three years. It’s great to be you, and you are part of a fortunate and elite crowd.

You’re brave: You have both ends of the financing worked out, and you buy bargains to sell, for the most part, at small margins. Most likely you are forced to run a volume business. Do enough deals and you can still cash in on the current market conditions. But you are probably working yourself sick to make the same money that will take half the effort as the market improves.

You’re foolish: You know you can get bargains, so you buy them any way possible. But did you plan how you are going to get rid of them? If you’re trying to make a killing and price your resale high, your short-term financing may come due before you can resell. Quick sell it at a discount, and you may have so little margin by the time you unload you could wind up breaking even. If you get stuck holding, you still have to pay off your short-term lender. The unhappy possibilities are endless.

You could be wise. Even though there are juicy discounts out there, as the siren song of equity beckons, you could remind yourself about the resale profile of your deal in this market. It’s simple, really: don’t buy, and you don’t have to sell. You’ve waited all this time, maybe there’s wisdom in waiting just a little while longer.

In this market, hungry real estate entrepreneurs can get income streams from diverse sources.

 I love spotting a real estate deal, analyzing what it needs to be profitable, developing a plan and executing it with determination and creativity. It ’s what gets my motor running.

But the current housing market has taken some steam out of my engine.  Real estate investing is yielding less lucrative deals in the short term, at least.

I am an entrepreneur first and a real estate professional second, so I continue to search my environment for opportunities that make investment sense.

I spent some time reading about internet marketing and affiliate sales, and I started to see how to leverage the core investor inside me in a new way.

Internet marketing exercises the same investment skills as traditional real estate does without anywhere near the level of risk and exposure from owning real property.

It’s just a fact that running 10 PPC (pay per click) campaigns will cost a lot less money and require less time and management than 10 rental properties, yet the positive cash flow can easily be higher than what rental income would produce.

That’s particularly true in these times where rentals are more competitive, rent is harder to collect due to increasing unemployment, and appreciation on your investment is delayed until the recovery.

Of course the physical nature of real estate is not part of the process but the entrepreneurial results are. Frankly, its a nice change to work with an investment that requires very little cash out of pocket and no long-term commitment in order to generate a monthly income stream with the same unlimited growth potential.

After looking more closely at what attracts me to real estate investing, it became apparent how many similar skills are used to build an income stream from internet marketing.

A simple summary of the internet marketing process looks like this:

• Analyze products or offers to identify ones with strong niche appeal and research their search and competition ratios.
• Develop a promotional campaign based on effective keywords that show good search results.
• After one or two weeks of general promotion and analysis, optimize the best keywords for promoting the product and converting sales.
•  Scale the campaign to it’s best performance level. At that point, I’m free to start another campaign.

Some of the details of the process may sound a bit esoteric and unfamiliar, but so did real estate when we first got started. Like me, you probably became active with your local REIA group and got a lot of education in a short time.

Internet marketing has something similar called Wealthy Affiliate University which is the #1 training resource on the web. I’m logged in every day, all day long.  It has all of the tools, resources and support channels you need to become successful and profitable online.

I love real estate investing and I can’t wait for things to get back on track. But I also believe the good times are a little way off, and I just don’t have the patience to sit around and wait. 

I get great satisfaction building income streams from diverse sources.  Internet marketing is exciting, affordable and profitable.  It is also a particularly good fit for real estate entrepreneurs looking for more cash generating opportunities.

Deals in seller's and buyer's markets merely have different profiles, which makes this is a good time for a pro’s and con’s refresher.

The real estate recovery will soon be on the way, but it’s been so long you may have forgotten the down side of a seller’s market. The best time to remember is before it gets here again so you can capitalize on the sweet spot in the cycle.

Deals in seller’s and buyer’s markets merely have different profiles, and in the midst of either, one looks wistfully over at the green grass of the other.

Which makes this is a good time for a pro’s and con’s refresher.

SELLER’S MARKETS:

In a seller’s market, it’s easy to remember the pro’s. Seller’s markets seem like summer days, easy to take and what investor would mind if they never ended? But few remember the down side of the seller’s market so I’ll re-enlighten everyone.

SELLER’S MARKET PRO’S:

• Property prices are appreciating:
  • Ah, the beautiful sound of money growing while you’re just standing around. When buying investments right, I have had property double in value in a couple of years. And I have sold them at those prices. Nothing gets you more addicted to real estate investing than this phenomenal experience.
• Money is plentiful for both fix-up and refi:
  • When property is appreciating, banks and alternative lenders are usually more comfortable with collateralized loans. It should be noted that while the financial picture has changed a bit since the sub-prime crisis, lenders still must lend to make money, so terms should ease again at some point, especially if property begins appreciating again.
• Days on market are few, quick turnaround, lower carrying costs:
  • Quick turnaround is a critical profit factor in real estate deals. The fact that time is money really becomes personal when holding a flip that you want off the books as fast as possible. In a seller’s market, the climate is good for quick turnaround and you can get your capital out and working on a new deal fast.
• FSBO is viable, saves on real estate commissions:
  • I had just bought a house in a northern suburb, and as I was standing on the front lawn taking “before” pictures, a guy pulled up in a pickup truck and said he was interested in buying the house. I never touched the property, never made a mortgage payment, and sold it to him a couple of weeks later for a respectable wholesale profit. I love those falling off a log FSBO days!
• Fix-up is minimal, lower renovation costs:
  • Speaking of critical profit factors, fix-up costs can kill deal margins quicker than a New England spring. We all do nice renovations and want buyers to have nice houses, but palaces? Maybe not at the bread and butter deal level. The fewer extras, like Jacuzzi tubs and wet bars, the less deluxe the finishes like imported Italian stone and Koa wood, the more money in your pocket at the end of the deal.
• Demand outstrips supply, fewer closing concessions:
  • Will you do me a favor? Will you pay my attorney’s fee? In a seller’s market, buyers wouldn’t dare ask you to pay closing costs. In fact, they might even come out of pocket for some of your expenses.

SELLER’S MARKET CON’S:

• Acquisition costs are higher for fixer-uppers, just like everything else:
  • Sellers of unfixed properties next door to three renovations want fully renovated retail for their leaky roofed, termite munched, cockroach riddled wrecks, and the trouble is there are several investors who will pay it.
• Easy to flip, but temptation to hold investment increases because of price jumps:
  • The investor base increasingly holds property which tightens the rental market, which lowers rents to the point you can’t cover the first on your fix-up if you bought it too high. You then have to count on appreciation to make up the difference, which is paper wealth if you don’t divest the property. You’re still in a negative cash flow situation on a monthly basis.
• Competition is stiff among investors, deals are harder to find:
  • During the seller’s market it’s hard to find deals. Everyone’s odd uncle is a real estate investor. I’ll never forget walking into a convenience store and overhearing a neighborhood transient sitting on a stack of newspapers in a corner exclaiming, “I’m gonna buy me a house and fix it up and flip it!” even though they didn’t have enough money to buy one of the newspapers they were sitting on.

CONCLUSION:

The market is in constant flux, and there are better and worse phases in the market cycle to make money. The end of a buyer’s market and the beginning of a seller’s market are probably the best for investors, so keep your eye on the horizon.

Read the companion to this article, a refresher on buyer’s market pro’s and cons: “Bad Real Estate Market? Whatever. The Deals Are Out There”

The real estate recovery is inevitable. It's not too soon to start getting prepared.

Remember how easy it was for the fabled townsfolk to dance around the prone and hulking corpse of the giant who once terrorized them?  Before the giant was killed by the courageous Jack, however, dancing did not come easy (maybe it was the wobbly knees?). 

This pre-kill point is where we are in the real estate cycle, the industry so saturated with hopelessness that dancing days are all but inconceivable.  But the giant will fall, and when he does, you need to be ready.

OK, the US economic framework has been shaken to its core.  OK, the real estate industry still feels like the lower 9th ward in New Orleans post-Katrina.  But will you be ready when, after dragging the bottom for a longer than tolerable period of time, the real estate market actually ticks up? 

Real estate is cyclical, real estate is cyclical, real estate is cyclical…  Keep repeating this mantra because there is life after the slump, meltdown, crash, insert your grim noun here.  This crazy idea has been gaining momentum in the real estate industry lately.  More and more it is displacing the suffocating gloom that once occupied the same space. 

In its previous incarnation, “extrapolation bias” which is the tendency to think things will continue as they have been, caused the bubble to catch so many investors out on a limb.  The newly entrenched version caused by the slump, that real estate will continue to decline, has actually begun to reverse.

Recently, we have started to see brief glimpses that real estate will soon be moving out of survival mode into recovery, and it gets you thinking, or more accurately “feeling.”  If this cataclysm is actually going to end, it’s time to start planning.  What a delicious task to finally undertake as visions of appreciation and equity once again push themselves into our consciousness. 

Five things to do immediately:

1. Finalize the optimization of poor performing assets.  This means renting houses that won’t sell at any price in this market worth taking, so they can at least cover their financing until the market improves.

 

2. Begin researching the new conventional financing guidelines and the alternative financing climate:
   • While sub-prime loans from conventional lenders will be virtually non-existent, sellers may be disposed to consider owner financing, something you can use yourself in a tight sub-prime market to move your resale inventory early in the recovery.

    

   • Hard money lenders have been hurt severely by defaults on properties where equity dried up with falling prices, and are now saddled with houses they can’t resell.  But in order to stay in business they still need to lend money.  As home prices rise and they see a steady gain in value, they may soften their terms.

    

   • Accordingly, if you have assets you’re trying to sell to capitalize other projects, you will start to see more favorable conditions – you won’t have to spend quite so much fixing to perfection, you might actually be able to FSBO, and days on market won’t drag into the next millennium.

    

3. Continue to watch for buzz about the bottom, because that’s what consumers are listening to: 
   • As we know, the media are always at least one tick behind real estate current conditions and tend to play it safe.  Remember, we saw this on the down slope when most denied the crash was impending. 

    

   • More and more articles are emerging about the recovery, which likely indicates the dawn.  We have started seeing headlines about the bottom from credentialed pundits, and statistics that support the “beginning of the end,” so the starting gun is getting ready to go off.
4. Be on the lookout for the first markets to firm up.  Believe it or not, these are probably extreme collapse areas like Florida, California and Nevada because the markets have overcorrected there.  If you aren’t in a position to take advantage of opportunities in these areas, remember that soon other markets will follow and the best profits will be for those who take action at the beginning when prices are still at their lowest.

 

5. Pre-visualize the recovery and develop a concrete investment plan using normal (not abnormally unfavorable) market conditions.  What types of property will you be looking for?  Map out in detail what purchase price, what condition, what location, and what end result (sell, hold) you will execute.

It’s not that crazy to start thinking aftermath.  In fact, it’s critical if you want to be on top of things when the time comes, and it inevitably will.