Creative Real Estate Investing for Flat and Down Markets

By: Matthew Soren

I find the current media coverage about the "Bursting Real Estate Bubble'to be priceless for those of us who are investors. They talk about falling house prices which will only bring gloom and doom for homeowners and real estate investors a like.

I can understand where they are coming from; having little or no knowledge about investing and that is OK, because it just creates more opportunity for you and I.

Real estate is cyclical and always has been. There was a large national article published that stated Las Vegas real estate had completely capped out and there was no place for it to go but down. Does that sound familiar? If so, you may want to think again. That article was published nearly half a century ago! Has real estate gone up in value in Las Vegas in the last 50 years? You bet, and not just a little! Now does that mean real estate is going to keep going up like it has the last few years? I definitely would not plan on it, so the benefit of this type of media coverage is invaluable.

*It creates fear that scares off a lot of people from investing (creating more opportunity).

*It eliminates aggressive scam investments (as we saw rampant with builders in Florida and Las Vegas the last few years).

*It makes people question the value of their properties (creating more flexible sellers).

Here is something to consider: do you know any ultra successful real estate investor that is afraid of flat or declining house prices? Quite to the contrary, knowledgeable investors understand when markets are flat or down it just weeds out beginning investors, makes people panic and means more opportunity.

What's important to understand is just as real estate is cyclical, so are the amount of buyers and sellers in a given market. When markets are up, you'll have to spend more time finding motivated sellers, but you have the benefit of appreciation on your side. When markets are down, you can't depend on appreciation, but you'll have a lot more motivated sellers to work with. In fact, when markets are down, you usually have to let 'good' deals go, so you can take advantage of the 'best' deals!

We're not just buying properties and hoping that they will appreciate or go up in value. That's not investing, that's speculating! Your completely dependent on future growth that is entirely out of your control. That's a conventional mindset and will not work in flat or declining real estate markets especially in the short term. Like any business, you need to make well calculated decisions. In real estate, that includes making creative, risk free offers and setting up your exits appropriately for the specific circumstances.

There are better and more creative real estate strategies for down and soft markets like assignments, lease options(as a seller or a "sandwich"), foreclosures, short sales, wholesaling and "subject to" arrangements. But even when doing rehabs or fixer uppers (which are not typically recommended in down markets) there are still good ways to make a good profit with the right system and proper planning. For example, let's say you are in a market depreciating at 10% a year, you would need to factor in the time to make the rehab repairs plus the time to sell (with a cushion), then subtract market depreciation during that time. So if an area was depreciating at 10% a year and you had a property that would take 2-3 months to fix up and 2-3 months to sell, you would want to subtract an additional 5-6% from the retails sales price when making your offer to a seller. There's really no issue with doing rehabs of fixer uppers in down markets, you just need to factor in depreciation accordingly. This is why faster, lower risk, more creative real estate investing strategies are better to use during market declines.

The point is market conditions will not determine your success; it's how you approach your market and do what is appropriate for the current trends. When you structure risk free deals and make calculated decisions, the market conditions will never be a determining factor of whether you make money or not!

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