If the strategy for investing in real estate in 2009 had to be whittled down to one word, it would be this one: “conservatively.” There are a number of differing opinions about when the market is going to rebound, which markets are fundamentally strong and where you should be putting your money. People always argue that one method for investing in real estate is better than another, and of course they support their claim with a bunch of fuzzy math and a laundry list of pros and cons. But how do you really compare investing strategies like “buy and hold” to “fix and flip” or “hard money lending” to “purchasing trust deeds?” In truth, you don’t have to, because they all lead back to the same core investing philosophy: “keep it simple, stupid.” Oh, and also… “keep it conservative too.”
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What I mean to say is, while the current real estate drama has opened up doors and windows for those that have always wanted to add real estate to their portfolio, it’s also created massive black holes that inexperienced investors can easily get sucked into. As a result, you have to be more careful today than ever before when you enter a transaction dealing with real property, regardless of whether you’re purchasing, lending, insuring or participating.
So then, knowing that we’re going to keep things simple and conservative in 2009, how exactly do we go about investing in what’s being called one of the most opportunistic markets of our lifetime? My advice is simple: Do only what you know how to do, or find someone that knows how to do something else to help you.
Even with all of the opportunity that 2009 will likely present, it will bring with it an insurmountable load of risk and uncertainty. Market value a year from now could very well be 20% lower than it is today. So before you run out and start piling real estate into your portfolio, here are a few quick nuggets of wisdom, along with The Golden Rule for Investing in Real Estate in 2009:
- Invest in What you Know
The reason that there millions more stock investors than there are real estate investors is because stock is simple, just like the commercials say. One click and you can buy a share of stock anywhere in the world. Unfortunately, real estate investors don’t have the same luxury. Our investments are more complicated and require time and energy. For this reason, it’s very important that you know what you’re doing before your start doing it. Or, at the very least, get in touch with someone that knows what you’re doing and ask them for help. One bad step in this game can cost you thousands of dollars.
- Pick a Suitable Strategy
There are dozens of strategies that gurus and other experts say that you should focus your energy on. Whether it’s picking up short sales, lending hard money, or buying for cash flow, the truth is that every strategy has a time and a place. You need to decide what’s going to work best for you based on where you are, the financial resources that you have available to you and the timing of your business plan.
Here are a few examples of different types of real estate investments that work, albeit some better than others, in an environment like this:
· Buy and hold (cash flow)
· Fix and flip
· Private Money Lending
· Purchasing Distressed Debt Securities
· Purchasing Trust Deeds
· Purchasing Property “Subject To”
· Short Sales
· Foreclosures
· Lease-Purchases
If you don’t know what these strategies entail, don’t be afraid to find out. There are hundreds of resources (most free) for finding out how to tackle these investing strategies. The most important thing is to figure out how you can use your chosen strategy conservatively in today’s market.
- Get a Second Opinion
One of the best ways to get started investing in 2009 is to find an expert that knows the market and the pitfalls that can come as a result of it. Most experienced investors that are having success invite beginning investors with even a little bit of cash to invest with them and learn the rules of the game along the way. Or, if you’re too entrepreneurial for that sort of thing, at least find someone with some experience whose brain you can pick along the way. Experience in this type of market is worth a million bucks alone. Trust me.
- The Golden Rule: Don’t Take Unnecessary Risk!
There are far too many opportunities out there this year. Don’t even think about taking on unnecessary risk. Even if you only go after the best deals, you’ll have plenty to feast on and you won’t suffer any losses that could have easily been avoided. Make sure that you’re in love with an investment before you make any commitments, and leave the so-so deals for novice investors to pick up. You’ll be much better off for it in the long run.
The last piece of advice that you need when attempting to invest in real estate in 2009 is actually a question. It’s a question that you should keep in the back of your mind at all times: “What is property really worth today, and what’s it going to be worth tomorrow?” There are a number of factors that affect real estate investment besides value itself. The credit markets, foreclosure rates, and legislative changes are just a few things you need to consider.
Whatever you do, tread carefully in 2009. There are traps aplenty amidst the golden façade of what looks like one of the greatest investing opportunities of all time. Know how to recognize the demons or you’re likely to get snared.
