Flipping is easy in rising markets.
There is certainly excitement in the purchase and quick resale of a home for a tidy profit. When prices are rising, having a good strategy to locate bargains that can be repaired or renovated for profit can be a solid business plan. However, many real estate investors fail to survive over the long term because these rising cycles are temporary, just like downward trends.
Too much financial leverage has taken down many an investor who got caught in a downward spiral with too many properties that weren't paying for themselves and couldn't be sold without a loss. Many times this is unavoidable unless the investor can recognize an approaching market turn with enough time to do something about it. This article is more about how to invest for profits in falling or troubled markets.
Real estate investing in troubled markets requires more ingenuity.
There are various factors influencing the strength of real estate markets and the direction home prices are moving in a market. While national troubles can be big news, real estate is local, and local events and situations can create market turbulence at any time. The loss of a major employer, natural disasters, or just changing population demographics can create downward pressures on a local real estate market and home prices.
- Jobs can leave the area.
- Jobs can move within the area creating problems and opportunities in different neighborhoods.
- Local government can initiate projects that will influence real estate development.
Successful investors in these situations will understand the pressures on home prices, both up and down. They will find opportunities others don't recognize. In the real estate and mortgage crisis from 2006 through 2010 and beyond, many investors were bankrupted because they held properties purchased at higher prices in the rising market up until 2006. They couldn't get out, and they couldn't hold on to the properties and put tenants in them at rents high enough to keep them afloat. They had purchased with resale at a higher price as their primary strategy.
However, right behind them came other investors who found depressed home prices and low mortgage rates. They realized that those people losing their homes needed to live somewhere, and purchased foreclosures and short sale homes to rent them out. Homes were bought for 30% to 70% below their previously inflated prices, and placed into rental service.
Other real estate investors used lease-to-own techniques to help people back into home ownership when their credit ratings were damaged and they were far short of down payments required to purchase. Still others "wrapped" deals around the existing mortgage to purchase homes from those who had to sell but had not been able to. Wrapping a deal around the existing loan allowed the seller to move on and the buyer to purchase with excellent terms and sometimes even rent the home back to the seller.
When markets are in cycles, which is much of the time, those who want to be successful in real estate investment should watch what others are doing. There are profits to be made in every market cycle. It's just a matter of careful research and a plan that takes into account how long the current cycle is anticipated to last.
