?> The Secret to Avoiding a Bad Investment in the Current Real Estate Market | Creative Real Estate Investing Guide

The Secret to Avoiding a Bad Investment in the Current Real Estate Market

Real estate investing is like growing grapes for wine.  There is a microclimate effect on grapes. One vineyard produces merlot grapes that produce wine that sell for ten dollars a bottle and the one right next door produces wine that sell for $150 a bottle.  What’s the difference?  Location, location, location!  One gets better sun, better rainfall or has more nutrient rich soil.  These elements make for a better result.  Houses are similar, even in this turbulent market.  Right now it is very tough in some markets because of falling prices.  Florida, California, Nevada and Arizona, enjoyed rapid price appreciation while the rest of the country saw more moderate price growth over the past few years.  These areas are now being riddled with foreclosures and abandoned properties while other parts of the country are still selling homes.  Texas and North Carolina have areas which boast strong demand.  Tennessee is another state which is drawing in new population causing properties to sell.

The microclimate aspects of real estate is to know the areas where owner occupants want to live.  Places that, even in this kind of market, show pride of ownership.  Neighborhoods which attract owner occupants and families.  Easy access to shopping, good schools and low crime.  Isn’t that where you’d like to live?  This is a market where you must buy at either a deep discount or with excellent terms. In slow but desirable areas I prefer to buy and hold on until the market recovers while in more rental oriented areas I am looking for seller concessions in terms of deferred payments, discounted pricing or long term financing.  In either case, by buying right I can cash flow now and if I choose, I can seller finance my way out or help my tenants and buyers obtain conventional financing when the market recovers.  Best of all, I might not sell a single one, let them pay down and give me a nice monthly retirement income.  It’s great to have choices!

In any market you need to know the local fundamentals and plans for future development as well as which properties/areas are selling at any given time.  You must also have the knowledge to negotiate the right kinds of terms.  Terms that allow you to buy without conventional financing and to make the property easy to finance for your tenants, tenant buyers or buyers.  This way you are never at the mercy of bank financing.  In my upcoming “Knowledge” post, I will share my favorite technique for Managing in This Market.  While it works well in any market, it works particularly well when the residential real estate market is in turmoil…and friends…WE’RE IN TURMOIL!!

When you learn to understand sellers needs and find a way to create a deal using Intellectual Capital rather than cash or credit, you’re on your way to total control over your financial future!

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16 Responses to “The Secret to Avoiding a Bad Investment in the Current Real Estate Market”

  1. Leif Spiel says:

    I really like the vineyard analogy to markets. That paints a good picture.
    I can also vouch for growth in North Carolina. Just last year, Wilmington, NC, a city on the coast, experienced annual growth of 8% which is incredible.

  2. Augie says:

    That’s incredible growth. How long have you been investing.

  3. Cara door says:

    I agree, it’s great to have choices!

  4. Van says:

    Negotiating the right terms is very important initially. It will definitely determine how the deal is structured overall.

  5. Joe Smith says:

    I have the opportunity to invest in Charlotte commercial real estate. This post definitely made me jump in and take the plunge.

  6. How about a cheesy real estate joke? If you ever think that no cares if you are alive or dead then just try missing a few house payments.

  7. Augie says:

    Who says real estate investors don’t have a sense of humor?

  8. That’s incredible growth wow!

  9. Hi, stumbled upon this article from Bing and just wanted to say thanks for the informational article you have written about.

  10. Clear advice, but understanding what people will pay is key to all property investments and location is key to that value.

  11. Manny says:

    Today, in these changing economic conditions and investment options, real estate definitely is a lucrative market wherein more and more people are coming forward to invest. But as rightly stated in this article, you need to be very cautious when it comes to real estate investment as things can change in a drastic way over night. Finding ways to avoid conventional financing and getting out of banking clutches is always a good move.

  12. Lloyd says:

    I completely agree that a good understanding of the “Location” aspect of this business is truly the key to surviving in the real estate industry.

  13. Anne says:

    I noticed that the date of when this was written may have been three years ago. In that time, different areas of the country have recovered a bit, but in others, no. Here in Napa after all the short sales, the real estate market seems to be variable, depending, of course, on location, as you said. Besides the real estate market itself, I would hesitate to trust in banks for their “greed” documented in the last few years as a source of mortgages. Do you find some mistrust among your buyers?

  14. Augie says:

    Hello Anne,

    In our market we’re seeing the majority of transactions being cash purchases. Those that are bank financed tend to take a lot longer and also have stricter compliance issues for loan approval. I don’t see as much mistrust of lenders, its more like frustration over the approval process coupled with a seemingly capricious approach on behalf of the banks. There doesn’t appear to be a set guideline for approval and the deals can continue to change right up until closing.

    Happy investing,


  15. Very well written advice and guidance but it’s important especially these days to know the local market as the days of buying property blind have long since gone. A lot more research now has to be done before any investment

  16. Gustan Cho says:

    Great advice… wish I had a time machine lol!

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