Does that mean you can’t invest in real estate?

Should you just wait the market out?

No.  There are still opportunities in declining markets.  You just need to modify your real estate investing strategy.  When a market is in decline probably the single most important thing to do in real estate investing is not to own property.  If you own it, you are going to be stuck watching the value go down.   But just because you don’t want to own doesn’t mean you can’t be in the game.

Here are four great choices for real estate investing in declining markets.

1. Wholesaling – flip the deals without ever closing on them.  Get a great deal under contract and then flip it to an end buyer.  The best way to do this is to assign the contract and take an assignment fee.  Your other option is a simultaneous closing.  This way you are making a profit without having to hold the property.  Very safe.

2. Short Sales – let’s face it, the foreclosure rate is higher right now than it has ever been in history.  It’s higher now than it even was last year or the year before.  There are tons of short sale opportunities out there.  But to do this safely you’ll be best off finding an end buyer BEFORE you have to close on the deal.  If you are closing and hoping to make a big profit by reselling you’ll end up with a much higher level of risk because you are holding in a declining market.

3. Lease Options – Wendy Patton, the nation’s leading trainer on lease options, talks all the time about “control without ownership.”  That’s what lease options are.  By doing a sandwich lease option you place yourself in the middle of the deal without having to own the property.  If you are in a declining market you need to take into account some depreciation as you set up your deals.  If the market declines too much you can always try to renegotiate with the seller.  But no matter what because it’s an option you aren’t obligated to purchase, you aren’t obligated to close on the deal.

4. Real Estate Timing – If your market is declining then find another market to invest in that is about to go up.  The above 3 options are great ways to invest in declining markets, but they can be a whole lot of work!  And you really don’t need to invest in your own backyard.  Spread your wings and find markets that aren’t declining.  Buy property in markets that are going up so you don’t have to do all of that hard work for each and every deal.  This national approach to real estate investing allows you to get out of the highly competitive grind of hustling to find deals in your own market and then hustling to find buyers.

It’s also an exciting time though because we get to see those new real estate market analysis charts.

The important thing with real estate timing is to watch the markets you are interested in and seeing what is happening in the market.  Is it time to buy?  Is it time to sell?  Is it time to watch and wait or hold your existing purchase and watch the value go up?

One of the things I really like about the real estate timing market analysis charts is that it really helps me to know what is actually going on in any particular market and filter through all of the media hype and nonsense about what they claim is going on in real estate.  After all, if you can see one news article saying the housing crisis is over and another article saying that the foreclosure rate is higher than ever on the exact same day, how can you possibly trust the media?

Instead I can rely on the actual data and the market momentum calculations to tell me when to buy, when to sell and when to hold.  This is much better than guesswork in real estate investing.

You can use real estate timing to determine what is going on in your own market as well so you can determine your real estate investing strategy.  For example, if your market is in decline you are going to have a different investing strategy than if your market is going up.  Different real estate investing strategies have different levels of success based on the conditions of the market.  For example, it’s a lot harder to buy and flip rehab properties in a declining market.  So let’s say that you look at the real estate timing market indicator charts and determine that your market is in decline.  What is a good real estate investing strategy for that kind of market?

How about lease options?

Lease options are an excellent choice for declining real estate markets because you are not obligated to complete the purchase if the market changes too much, or you can always renegotiate the terms to still close on the deal.  The other thing that is great about lease options is that you don’t need money out of your own pocket.  They can be truly no money down investing deals.

Investing in Real Estate with Lease Options and Subject To Deals

If you are interested in learning about lease options, I recommend Wendy Patton’s book, “Investing in Real Estate with Lease Options and Subject To Deals.”  It is a detailed hands-on guide to learning how to do lease option investing.  Wendy Patton takes you through the whole process, giving examples as she goes.  Wendy is one of those who teaches by doing, as she has done over 650 lease options in her real estate investing career.  I actually know this book very well because I held my real estate license with Wendy Patton’s real estate brokerage for many years before I relocated.  If you are interested in learning about lease option investing this book is definitely where you want to get started.  Take a look at “Investing in Real Estate with Lease Options and Subject To Deals.”

historical home rehab - before

This means you have certain criteria you have to meet when making changes to the home.  The historical society wants to preserve the character and nature of the home.  As a novice real estate investor what this meant to me was that I didn’t really know what I was getting myself into.  Here is a before shot of the living room.  Man, that wall paper makes my eyes hurt

The reason I bought the home was because I saw all of the potential it had.  I knew it could be restored to glory.  And just as importantly I knew it wasn’t going to take a lot of investment in materials to do it, just tons and tons of elbow grease.  This was good because I was doing this real estate investment rehab on a shoe-string budget.

This was back in the day when I do doing the work myself.  It was my first project and the time table wasn’t nearly as important as keeping the costs down.

The first mistake I made was to live in the home at the same time I was renovating it.  As I said I needed to keep costs down and that helped.  The problem with this was that it required living in a home that was in a constant state of renovation.  For example, it’s a real pain in the butt trying to use a kitchen when you are rebuilding the cabinets and dust and construction debris keeps getting all over your food.

The big thing about these historical homes is all of the great original woodwork and construction elements.  7 1/2 inch baseboards and window trim.  Fantastic hardwood floors.  All kinds of construction details that really makes these homes great and have a level of character you don’t see in most homes today.  The problem is that since the home was built in 1929, all of those great elements weren’t always in style through the years.  So the fantastic woodworking elements were painted over.  The hardwood floors were carpeted over (and in some cases linoleum was glued directly to them).  To restore these elements to their original glory means stripping off all of the layers to get back down to the original and then refinishing it.  Let me tell you, this is really hard, time consuming work.  If you are looking for rehab projects to buy, fix and flip and have contractors do the work, I definitely don’t recommend historical homes.  The restoration work takes a long time and the labor costs would eat you alive.

historical home rehab - after

I removed every single baseboard from the house, labeled them, and used a very nasty chemical to strip 7 layers of paint, all different colors, off each one.  I want to know who the heck thought olive green was a good color for baseboards???  I did the same thing with all of the window trim pieces, including every little piece of moulding.  I tore out all of the carpets and sanded the floors down.  Then I refinished everything.  Here is the after shot of all of these historical elements restored.

I was very proud of all my hard work.  I thought it looked great.  And by the way, I even made a little bit of money off this house.  Of course, it wasn’t because I bought right.  In this case, I actually paid too much money for the house when I bought it.  It wasn’t because I knew about real estate timing and bought knowing that the market was going up.  It wasn’t that I kept the rehab costs down so I left myself some equity spread, in fact the rehab costs were much higher than I anticipated even though I did all of the work myself.  This was my very first rehab and I really didn’t know what I was doing.  So the reason I made a little money off this one was because I got lucky!

In this case the real estate timing was right.  I bought while the market was going up and the rehab took me so long that the home appreciated in value enough to cover all my costs and even make a little bit.

Certainly this is not how I recommend doing your real estate investing.  Relying on luck is no way to try and make a living as a real estate investor.

At the same time I have to admit that I’m a bit puzzled at how economists can claim that the housing crisis is over.  Because at the same time that I’m seeing all of this news claiming that things have turned around I’m also seeing news like this:

“Mortgage Delinquencies break another record” -According to MarketWatch, the percentage of residential mortgages in foreclosure or at least one payment delinquent has hit an all time high of 13.16% in the second quarter of 2009.  This is the HIGHEST EVER rate recorded by the Mortgage Bankers Association.  (Source MarketWatch, Amy Hoak, 8/20/09)

Either I’m missing something that all of these top economists understand but I don’t or we are clearly not done with the housing crisis yet.  If the foreclosure rate is higher than it has ever been that means that there are going to be more bank owned homes coming onto the market than we already have.

Is this happening everywhere in the US?  No.  Some areas are seeing some signs of recovery.  But just as clearly some areas are not done going down yet.  If you are a real estate investor I would think that you would want to know which.  Because if you buy in one place you may be making a safe real estate investment.  But if you buy in another you may still see home prices drop in that area.

There is a lot of opportunity out there right now for real estate investors, but you’ve got to know where you should be buying.  You want to be buying at the right time in the right markets so you can actually make money with your real estate investments – not see them drop in value shortly after you buy.  This is where real estate timing comes in.  You need to know When to Buy and When to Sell.  With the proper resources, like the real estate market analysis charts at REMarketStats, you can do just that.

Before you start thinking it’s safe to just jump back into the market just because some economists claimed the housing crisis is over I strongly encourage you to find out more about the markets you are interested in.  If the foreclosure rate is higher than it has ever been it means there are some markets out there that are not out of deep water yet.

We are in a time right now where there are some fantastic buying opportunities for real estate investors.  Prices have dropped massively in some areas allowing rentals to cash flow that haven’t been able to for some years now.  But you need to know that those prices aren’t going to drop a whole lot more.  Do your research, find out about real estate timing.

The top 10 cities according to this report where buying is a bargain are as follows:

1. Detroit
2. Pittsburgh
3. Rochester, NY
4. Memphis
5. Tampa
6. Cleveland, TN
7. Dayton, OH
8. Columbia, SC
9. Orlando
10. Dallas-Fort Worth

(source BusinessWeek, Prashant Gopal 8-20-09)

In real estate investing the best time to buy is when the market is flooded with bargains and you can pick up cash flow rentals.  However, we also want to see our purchases increase in value and not decrease in value, which is where real estate timing comes in.  While this list may be great as far as properties that will cash flow, some of these markets are still seeing property values decline.  If you are looking to buy a cash flow rental property doesn’t it make sense to do it in a market that is going to go up instead?

The best way to choose your real estate investments is by picking markets where the market indicators are pointing towards buying, this means the property values are more likely to go up.  While you can make money from a cash flow rental property you are going to make a whole lot more money from a cash flow rental in an appreciating market.

The best way to choose these markets is by using the real estate timing market momentum charts, like the ones available at REMarketStats.

To do that I’m going to tell you a story about this house.  It’s a pretty nice house, right?  Brick colonial. It was built in 1997, with 4 bedrooms and 3 1/2 baths.  A finished full basement and has well over 3,000 square feet, plus the 2 car attached garage.

It’s in a great neighborhood, with excellent local schools.  Close to amenities, shopping, restaurants, entertainment.  Everything you are looking for.

In 1997 when this home was built it sold as new construction for $176,000.  I know, for some of you that’s really cheap.  This house is in the Midwest, not on one of the coasts.

In 2006, 9 years later this home sold for $280,000.  That’s $104,000 increase in value over 9 years, which isn’t bad for just one home.  This would certainly be pretty nice if you were the one buying this home in 1997 and selling it in 2006 and making the $104,000 profit.

Here’s the kicker though.  And this is why you really, really need to know about real estate timing.

In 2009 this home sold again for $154,000!  That’s $22,000 less than what it sold for 9 years ago!  I don’t know about you, but I sure as heck don’t want to be the one buying it for $280,000 and then selling it for $154,000.  That’s like going to the bank with your paycheck and handing it over to them and saying, “Keep it.  I’m not depositing it, just keep it.”

So my question to you is, what changed?

The location of the home didn’t change.  It’s still in a great neighborhood, with excellent schools and tons of great amenities.  It’s still the same home.

The only thing that changed was the timing.  The real estate timing.  Someone was in a position to make $104,000 in appreciation on this home and someone was in a position to lose $126,000.  It all happened because of the real estate timing.  I don’t know about you but I couldn’t afford to lose $126,000 on my real estate investments very often before it completely wiped me out.

And this is why real estate timing is so important.  You need to know WHEN to BUY and WHEN to SELL.  Because clearly if you get the timing right, you can make a whole lot of money.  And just as clearly, if you get the timing wrong, you can lose a whole lot of money.

If you want to learn more about real estate timing and how you can do it, visit us as REMarketStats.  Check out the video training to see more about how real estate timing works.

It’s sad but true.  I’ve since learned my lesson, learned about real estate timing and have become much more conservative.  Instead of trying to pick up as many deals as I possibly can, I’m taking a much more planned approach towards real estate investing for my future.  In fact, this approach has changed my whole life.

Let’s face it, in America we are a debtor society.  We buy things now and leave the paying for it part until later.  It isn’t that way everywhere though.  The Chinese, for example, are great savers.  They save money vigorously and are not big on having debts.  Even during the absolute peak of their real estate frenzy in China, home buyers were still putting significantly large amounts of money down on their home purchases.  Completely the opposite of the 100% financing craze we had here in America.  The result is that China’s real estate market is recovering much more quickly.  You don’t see tons and tons of homeowners upside-down there because they put large amounts down on their property.

There is an absolutely fantastic book that talks about how to save for your future and then build your wealth.  It isn’t really a real estate investing book, per say, but you can easily use the principals the book talks about an implement them as a real estate investor.  The book is called, “The Richest Man in Babylon” by George S. Clason.

The Richest Man in Bablyon

This book was given to me by Robyn Thompson when I was a student of hers.  I’m extremely grateful for that gift because it was the first book that started changing my thinking about how to plan for my future with financially sound principals.

The great thing about this book is that its an extremely easy and quick read.  You can read it in about 2 hours.  The story will capture you and it’s a great way to present a very powerful, but simple concept of how to plan for your future.

The Richest Man in Bablyon is also very cheap.  Do yourself a favor and pick this book up.  It really is worth it.

Here are part of the charts for the Orlando Florida real estate market going through 2007.  The first is the real estate timing market momentum chart for Existing Home Sales.  The second is the real estate timing market momentum chart for New Home Building Permits.

Orlando Existing Home Sales Market Momentum

Orlando Building Permits Market Momentum

The simplest way to interpret these charts is to understand that the line that runs horizontally across the chart is the zero line.  When the momentum reading goes above that zero line it’s an indicator pointing towards buy.  When the line goes below the zero line it’s an indicator pointing towards selling.

It’s important to keep in mind that it takes more than one indicator crossing the zero line to prod us into action.  In this case the first time we cross the zero line going up is late 1996 and early 1997.  When the second indicator crosses the zero line going up it shows us it’s time to buy in the Orlando real estate market.  As you can see the Orlando real estate market stays healthy for quite some time.

If you look at the New Home Building Permits market momentum chart for real estate timing you’ll see that around early 2000 to mid 2001 we kind of hover around the zero line.  However, because the Existing Home Sales Market Momentum chart is still well above the zero line we aren’t getting an action signal.  Again in mid 2005 the market momentum for New Home Building Permits starts to hover around the zero line again.  It isn’t until 2006, however, that the Existing Home Sales crosses the zero line.  Now we have these two indicators pointing towards selling so it’s time to take action.  And you can see after that both charts go well below the zero line all the way through the end of 2007.

Let’s take a look at the Median Home Sales Price for the Orlando Florida real estate market for this same time period to see how the market indicators are reflected in the home prices.

Orlando Median Price

As you can see before we get the first buy signal the Orlando real estate market is pretty flat as shown by the red line.  After we get the buy signal from the market momentum charts home prices start going up and up and up.  Finally after a very healthy amount of appreciation the market momentum charts point to selling.  You can see that after this home prices still go up for a little bit but then about 1 year after that they start to drop after peaking. This is good because it gives us time to get out of the market before we reach the peak.

The market momentum charts have shown us clearly when to buy and when to sell!  We can see how the real estate timing charts are reflected in the home sales prices.

None of this risky speculation that cost so many people so much money.

The charts told us it was time to buy in early 1997 and the prices went up.  Then they told us it was time to sell in 2006 and after that the prices went down.

As you can see these charts only go through the end of 2007.  If you want to find out what is going on in the Orlando real estate market or any other of about 230 real estate markets tracked by REMarketStats across the country visit our website to see more about real estate timing in the markets you are interested in.

Also if you want to learn more about how to analyze the real estate timing market momentum charts or want to see more examples of other markets go to the free video training on our website, REMarketStats video training.

Keep in mind, the MSA name is just a name.  If an area you are interested in is close to that MSA then you can use the MSA to look at the real estate timing charts and see what is happening with that real estate market.

Contrary to popular belief it is possible to time the real estate market and know when to buy and when to sell.  You can make a whole lot of money in real estate if you know the proper timing.