There is no doubt that it is more difficult to profit from a falling real estate market in the short term. However, some of the most successful real estate investors in the world made their money by buying when everyone else said to sell. While the overall market is declining, there are still countless opportunities for great returns if you look in the right places and time your purchase well. This article will give you enough simple tips to determine whether it's time to start buying or keep looking. Regardless of market or region, you'll learn how to love the opportunity that a slow market creates.
Focus on the regional market
Every region has a unique story to tell. Edmonton, Alberta has enjoyed a huge increase in home prices over the last few years. Now they’re experiencing a cyclical plateau that will probably last into the Q3 or Q4 of 2008—and then house prices will pick up again. This is where your knowledge and research earns you great dividends. Target your area and review the economic fundamentals that fuel it. Look for:
*Job growth and demand
*Critical transportation expansion/improvements
*Areas of transition and renewal
*Favorable interest rates
*Stable political environment
*Speculators exiting the market.
Invest only in areas with a future.
Find opportunities
Start by mapping out the areas that offer the best bang for your buck. Buy near areas that support a strong rental base. For example, Edmonton, Alberta offers the perfect opportunity to cherry pick by finding the most rentable units that require the least renovations from the most motivated sellers in the current market.
Break even and cash flow
After you have factored in ALL of your expenses (mortgage payments, taxes, vacancy rate, repair and maintenance, property management, condo fees, etc.) and you are still able to generate cash flow with a 20% to 25% down payment, write an offer.
Write an offer that is good for the seller—and you
In a slow market there are still tire kickers and people who need to sell. Focus on the motivated sellers and work out an agreement that works for both parties. This is your chance to get creative. Explore the possibility to reduce or defer your seller's capital gains by using an Agreement For Sale mortgage. Perhaps the seller will give you a VTB (Vendor Take Back) that will reduce your down-payment. A desperate seller is more willing to work with someone who is not out to take him to the cleaners. Remember that you are negotiating a sale that may be very emotional for a home owner. Striking a deal that helps the seller as well as yourself is the best way to go. This will not only generate goodwill between you and the seller, but can potentially open up other buying opportunities through his circle of friends and family. Be a problem solver, not a vulture.
Look for the speculators that the market shakes out
When the market is hot, people lose their heads and buy like crazy. Speculators may be looking to profit only in the rising market and often don't understand how to work the property during a price drop or slow market. Work with speculators who are over extended. Look for a property that you can buy at a heavily reduced price or with favorable financing or one whose cash flow can be improved through superior management. You are helping the speculator exit the market, saving his credit and possibly his skin.
Use negative media
If you have done your homework right, you won't be swayed by the negative headlines. When hysteria strikes and everyone wants to sell, write your offers accordingly. Attach a relevant news story to your offer that speaks to the worry in the seller's head. For example "Prices Drop 10% - Home Sellers are Stuck with Losing Properties". Solve their problem. Offer to buy their property when no one else will.
Think like the tortoise
Invest in real estate like Warren Buffet invests in stocks—for a good long time, based on their intrinsic value. Real Estate is a 'slow' investment, so plan for a 5 to 7 year horizon. If you choose to profit earlier, great, but make sure that the property is a keeper from day one.
