Everyone says NOW is the time to invest in real estate. Post 97

Coach Mitch’s REFLECTIONS

Headlines

Investors Cash in on Property Market Slump http://EzineArticles.com/?id=1274419

Now is The Time To Buy Denver Investment Property! http://EzineArticles.com/?id=1274243

Tips and Guides in Sarasota Real Estate Investing http://ezinearticles.com/?id=1275542

Last year and two years ago, these same folks were shouting the same things, except it was in the other direction. “Investors Cash In On Property Market Rise.” It is always a good time to buy investment real estate.

By the titles above, those folks think that their particular local markets are ripe for good investment. They have this opinion because prices in those areas have slumped, sometimes dramatically, OR prices have risen dramatically and increases are predicted into the future.

That real estate investing is a good thing to do is not in question. The real question should be: how can we invest so that we will be assured of making a profit?

Location, location, location

This is the mantra of real estate agents, isn’t it? “Just pick a really good location and you will always be able to get your money out of it.” This urban myth has been said to me many times, and I’m sure that you have heard it also.

While there certainly are wonderful aspects to a great location, the single most important factor in a real estate investment is the cost of the investment. Every other concern is secondary or less.

Price, price, price

I believe that I can make a very good argument that the cost of the investment is the most important factor in a real estate investment decision. It is not as obvious as one may think.

An example

In my area, four major drugstore chains are in a competition to buy up the best lots for their stores. Rite Aid, Eckerd, Walgreens, and CVS are building like mad and only at the “best” locations.

In speaking to Realtors who represent franchise operators, you find that they are a bit concerned that everyone realizes that the four giants are competing along the same model, i.e. most preferably, purchase a high traffic corner lot with a traffic light. Land owners know that the drug store chains are all competing for these prized locations and the prices are going up, up, up. What was $250,000, is now $1MM.

What’s the real question?

However, will the operation make enough money to justify the significantly increased cost of the land? If “yes” then when?

It is not an idle question

Just today, I learned of a major office building that was canceled because the cost of steel has become too high. The developer could not get tenants who could or would afford to pay the increased rents because of the higher building costs.

This is a good example of the wrong kind of “trickle down” economics. When costs are too high, lots of folks decide that they do not “need” the product or service. When costs are too high we decide to do without.

If the high land cost does not allow the drug store to make the profit needed to prosper, or even to sustain itself, then the store is a drain on the rest of the company’s operations. When enough stores are operating at a lowered expectation or at a deficit, then the mother company is at risk. Watch the stock price. Stock investors often will dump a stock when the profits are not strong. This is the stock markets version of owning a property in an area that is going down in value. Nobody wants to own a depreciating asset.

In the drug business, I suspect that Medicare payments will keep the giant chains profitable, despite the high land costs. Maybe that is the reason that the giant franchise operations are building now – they know something about the future of their marketplace.

Housing prices went too high

Tens of thousands of folks are simply walking away from their homes because they paid too much for their home and they cannot recoup their investment. Purchasers thought that prices would continue to rise. They are not, unfortunately, for these folks.

Due diligence

Buyers didn’t do any due diligence. If they had done a proper analysis, many would have seen that the market was topping out and that banks had become too exuberant in lending. Just like the stock market, the highest excitement level is just before the crash.

Some things are too good to be true

Time Shares are a good example of the high excitement / crash phenomenon. On my first trip to Orlando, I went on one of those breakfast tours of a high priced time share. (So I could get a discounted price on Disney tickets.)

My wife and I, being human, were impressed by the hype, etc. When it came time to make a purchase decision at $14,000, I asked, “What happens when people don’t pay for the time share any longer? Are there foreclosures?” Without missing a beat, the supervisor said, “Sure and they are at half price.” My wife and I looked at each other knowingly.

I later made a deal with the president of the local REIA who had knowledge of a 19 unit beachfront motel which had gone timeshare and which was in foreclosure. I was to sell the units up north at $1000. Our cost was $100.

There are always “deals”

In their excitement, buyers ignored the warning signs, which were blasted in headlines for at least a full year prior to the drop in prices. Don’t you recall all the news programs about “the housing bubble?”

In this regard, buyers could and should have asked about alternative ways to purchase. Many realtors know about Foreclosures, Subject To, Wraparounds, and Lease Options, etc.

Caveat Emptor

This is the principle that we are responsible for making our own decisions. When making a bad decision, we suffer the consequences. In a free society, this is just. We should be seeking ways to lower our costs of investment or ways to get more value. That includes finding out about new ways to make property investments and finding realtors who are familiar with your chosen methods.

Discounted property

In every part of our life, it is possible to get a better price. However, our culture is no longer gaited to bargain. We see a price and we just pay it. Sad.

However, while property is still one of the areas where bargaining is still acceptable in the public mind, I still do not see very much bargaining taking place. Ask any realtor, folks will not put in an offer if they think that the price is too high. They do not want to confront. It seems that our desire not to be embarrassed is stronger than our desire to get a home at an affordable price. Sad.

Most realtors are no help

One of the first questions I ask a realtor who wants to work with me is, “Are you OK with making really low offers?” Most will say, “Sure, sometimes I make an offer as low as 80% of fair market value.””No, that’s not what I’m talking about. Can you make really low offers, like below 50% of fair market value?” They just look at me like I have two heads, because I have just gone against their sense of fairness.

Perhaps it is political correctness gone haywire, but somehow we have lost the sense that individuals have the capacity for making their own decisions. When I say, “The owner can just say ‘No thank you’ and we will move on.” The realtor reacts with umbrage, as if I have insulted everyone involved. They do not want to work in this manner. The realtor thinks that it is a waste of his time. I usually acknowledge their attitude and say, “I need to work with a realtor who is comfortable making my kind of offers, and who will be comfortable knowing that sellers will take care of themselves, just like I am trying to make sure that I will get a profitable transaction.”

You MUST look at the best ways to invest

Coach Mitch’s “Ridiculously Simple System…” is a safe and easy way to invest in real estate. We concentrate on the most motivated of all motivated sellers, the tax delinquent.

We typically have offers accepted at 10% – 30% of market value. I have never paid more than 50% of market value. I have never lost money in a real estate deal.

When purchasing at this low pricing level – it is almost inconceivable to lose. And, isn’t the “no lose” investment strategy the kind you are seeking?  Offers being accepted at such low pricing levels can only happen if the seller are WILLING and ABLE to sell at these levels.  That is why my system concentrates on only speaking to the MOST motivated of all motivated sellers, the tax delinquent.

See Coach Mitch’s “Ridiculously Simple System…” for details.
Stick up for yourself,