Making Lemonade

Why now is the sweetest time to invest in real estate



In today’s market, it’s not hard to find a few lemons. The United States finished 2010 with a 9.4 percent national unemployment rate. Americans’ personal finances have turned sour as more people find themselves out of work. Companies are going out of business, and real estate prices are lower than they’ve been in decades.

But to make lemonade, all you need to add is a spoonful of sugar. In this case, the sweetness is the tasty opportunity that accompanies a struggling economy. People are reevaluating their careers. Companies that make it through the economic difficulties will be stronger in years to come. And rock-bottom real estate prices make now the perfect time to get involved in real estate investing.

As a whole, investors haven’t been gulping down opportunities lately, but real estate is one investment worth drinking to. This economic climate is perfectly conducive to creating positive cash flow off properties selling for rock-bottom prices. Granted, the overall economy is looking sour, but conversely, real estate opportunities are looking sweet.

Lemonade, anyone?

Real Estate Is an Opportunity

In all types of market conditions, real estate investing offers a stellar opportunity to generate wealth. One reason is that it doesn’t have to take a lot of time — you can invest in real estate without making it a full-time job or spending a lot of money.

Lynn Alder, a real estate investing specialist with over 30 years of experience, says this is one reason real estate investing is such an ideal opportunity for many different people.

“Real estate investing is an opportunity you can get involved in without quitting your job and investing a bunch of money,” Alder says. “You can do this in your spare time, and you can be successful. It offers the opportunity to gain wealth without spending your whole life’s savings in order to have control of your own life.”

Another reason real estate investing is such a real opportunity is that it will always fill a basic human need: shelter. No matter how bad the market is, people will always need a place to live. Real estate provides just that.

“It’s a really simple thing,” says Keith Sperry, a real estate specialist who has been involved in the business for 14 years. “Everyone needs a place to live. So in any market, that’s a constant. God isn’t making any more dirt, and there are 312 million Americans who need a place to live.”

Although real estate investing is always a great opportunity, today’s struggling economy presents investors with unique opportunities to make perhaps even more money than they could in a thriving economy. If you know how to go about it, now is a perfect time to capitalize on the unique circumstances that exist today in what Alder calls a “once-in-a-lifetime” opportunity.

 

Now Is the Time to Get Involved

As anyone who has researched real estate investing knows, the housing market experiences natural highs and lows over time. It’s a natural course for home prices to rise, then fall, then rise again and fall again.

During the housing boom a few years ago, housing prices were at an all-time high. But when the market crashed, people suddenly owed more on their homes than they were worth. Many fell behind on mortgage payments, and banks suddenly found themselves with more foreclosed properties than they could handle.

 

Cue the Real Estate Investors

“People are not buying right now because they think prices are so low that they won’t ever go back up again,” Alder says. “If they really understood the real estate cycle and what’s happened in this country forever, they would know now is when you want to be buying because prices won’t stay like this forever.”

It’s commonly understood that the key to successful real estate investing (or any type of investing) is to buy low and sell high. That’s easier said than done — especially when the economy is strong and home prices are high to begin with. But today’s market makes buying low easy. The trick is to find a way to make money off of a property, which people usually do by “flipping” the property — that is, buying it and then selling it a short time later for more than they paid — or by renting it out and creating cash flow. As it turns out, it’s easier to make money with both of these strategies when you’re buying properties for rock-bottom prices. And that opportunity isn’t as easy to find as lemonade on a menu.

“I’ve been investing in real estate for over 30 years, and I’ve never seen anything that even comes close to this as far as an opportunity to do deals,” Alder says. “I think it’s a once-in-a-lifetime thing. You always think things are going to stay the same as they are now, but that’s not how it works in real estate. If you don’t know that, you get hurt.”

 

‘Buy Low, Rent High’

“Buy low, sell high” is the mantra of anyone looking to make money in real estate investing. Obviously, you can’t make money if you sell properties for less than you buy them. It’s simple math. But mortgages are more difficult to come by now than they were a few years ago, and many people are choosing to rent instead of buy. This presents a perfect opportunity for real estate investors to make money.

“‘Buy low and sell high’ is always good, but in this market, ‘buy low and rent high’ is even better,” Sperry says. “The banks are tougher than ever on lending money for mortgages, so people have to rent.”

Owning property builds equity for an investor, and collecting rent from tenants creates positive cash flow. In a strong housing market, people usually prefer to keep the equity to themselves and pay a mortgage every month rather than a rent check. But in today’s economy, real estate investors benefit when people who can’t qualify for mortgages are forced to rent.

“Rent prices don’t generally go down,” Sperry says. “They stabilize or they go up. They’re like taxes. Right now you can buy for so low that it’s a great time to get involved in cash flow properties. If you buy low enough, properties create cash flow really well.”

This housing market also creates opportunities to generate wealth in areas of the United States where it has historically been much more difficult to find renters.

“You can create positive cash flow now in areas of the country where you never could before,” Lynn says. “The price and the interest rate determine your monthly payment. Your payment has been reduced to a point where you can buy a property and rent it out for enough to pay your expenses. In some areas, that was impossible to do before. Now, it isn’t.”

 

Do Your Homework

Ideal market conditions don’t guarantee profitable real estate investing. While circumstances in the market make now an excellent time to get involved, you’ll need tools to take advantage of these opportunities. One of the best tools is the ability to research.

Before you buy a property, do your homework. Buying properties for investment purposes is not just house hunting. Buying a home for your family is a largely emotional decision, but a different approach is required when it comes to real estate investing.

Take into consideration the factors that will make your property easy to sell or rent. Is it in a good neighborhood? Is the property in good condition? Is the home within the boundaries of a reputable school district? Are there multiple potential buyers or renters for this type of property?

It might take time to learn the tricks of the trade, but specialists say making sure you’re buying quality properties is a key to success in investing.

“First things first — do your homework,” Sperry says. “Make sure you’re looking at all appraisals and comps, and buy right. That’s the key. But how to do it? That’s the hard part. You need to be able to run proper analysis of properties. Look into the property and make sure it will make you money for years to come.”

It might sound intimidating to do such in-depth research on every property you buy, especially if you’re new to real estate investing. But with the right people on your side, you will have all the tools you need to be successful.

 

Put Your Team Together

Like any other field, it’s difficult — if not impossible — to succeed in real estate investing if you don’t have people helping you along the way.

“Don’t try to do this on your own,” Alder says. “Don’t try to go out and learn how to invest in real estate using trial and error.”

It isn’t that most people couldn’t figure things out along the way, but Alder says it’s better if you can learn from someone else who has already experienced real estate investing first-hand.

“It’s not hard, but people usually need someone to help them,” Alder says. “If you have someone you can go to who can answer your questions, it’s a totally different deal.”

Even after you have two feet solidly on the ground, there are still people who can make your job easier. If you invest in properties that you plan to rent out, hiring someone else to manage renters can be a smart way to regulate your workload.

“If you’re not into management, find a management company and let someone else manage the headaches and renters,” Sperry says. “Paying 8 or 9 percent for managers is more than worth it for your sanity. It lets you go on vacation without getting phone calls from your tenants. ”

There are still other people you can get to help you along the way — good real estate agents can be great resources, and members of local real estate clubs can give you the motivation and help you need.

But in the end, the best way to learn real estate investing is simply to get started.

“Get educated and have someone help you, and then go do it,” Alder says. “You can get educated and have someone help you, but if you never do it, you’ll never make any money.”

About Contributor

Lynn Alder

"Never buy a property with a negative cash flow. Negative cash flow means the rents from the property don't cover the payment and the expenses. I learned this the hard...

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