Purchase properties in 'distress'.
I have three now.

DO NOT get into this market unless you have good financial backing, or you could find yourself in the same boat as the people now facing foreclosure.

RE is NOT a quick turn game.
It can work in a rising market, but when the music stops the heavily leveraged owners with no cash for mortgage payments are going to loose.

I know what I wish I had done, buy Puts on the banks and homebuilders and anything that touches homes, such as Home Depot, furniture companies etc. I think it is too late now, it is priced into the market. I think it is too early to buy distressed properties, some columnists are prediciting an additional 25-40% drop

So todays bargain can be tomorrows overpriced white elephant

I would suggest that whatever you do you study it carefully and make sure you understand what you are doing and do not get greedy, that is how this started in the first place

You indicated that "prices are dropping" in your original post. Why would you look to make money in a market where the asset values are declining?

If you think about the situation more globally you might find a better answer.

What direction is the econommy going? What is the next move the Fed is going to do w/ interest rates (did anyone not see the most recent drop coming?). What is that going to do the value of the US dollar?

You could take short positions on REITs, if you can find ones that are heavy on residential property (and that's few and far between...)

Actually its probably a bit late for that. Doing so in early August would still have been a good move.

Don't laugh, but Real Estate Investing for Dummies is a pretty good book if you'd like to introduce yourself to the idea of buying investment RE.

"You indicated that "prices are dropping" in your original post. Why would you look to make money in a market where the asset values are declining?"

Because trying to mail the bottom of the curve is likely to backfire?
If you put enough down and can cover the costs (neutral to positive cash flow) than there is relatively little risk to holding even if process fall slightly more.

Or you can join the horde that is always chasing a rising market...the buy high so they can sell low crowd.

Frankly, it probably isn't a good idea to seek financial advice on the net. It would be wise to go to a financial planner and discuss the use of any additional cash you may end up with. Just make sure the financial planner is not one that makes money off selling insurance annuities or gets a commission from selling any financial items.
There are FP's who work on a set payment that they charge you and do not involve themselves in any sales.

"If you put enough down and can cover the costs (neutral to positive cash flow) than there is relatively little risk to holding even if process fall slightly more."

In today's market you need to put like 40-50% down to "cover the costs". Why would you want to put that much money into an investment that is "neutral to slightly positive cash flow"? You could put that money in the market and do much better. Plus investing in something like mutual funds requires much less work than real estate.

I'm not advocating timing the real estate market. I'm advocating avoiding it all together.

I'm not advocating timing the real estate market. I'm advocating avoiding it all together.

I don't know your RE market, but I'm in agreement with Brickeyee, now can be a good time to buy RE. One needn't put down 40-50%, in the short term, the market is good, but RE (for me) comes out way ahead over time. I've got the time, I'll stay with RE. As Brickeyee said, the time to buy is when people such as you want to avoid RE, the RE market always returns. RE also allows good tax deductions, more so than stocks. To each his own...

"In today's market you need to put like 40-50% down to "cover the costs"."

Not true at all.
It depends on the location and how the rental market is.

Feel free to buy high and try and make money.

I can get a positive cash flow on all 3 places I just purchased with only 25% down on each.
I have prospective tenants for 2 of them already, and the third is being shown this coming week.

"If you put enough down and can cover the costs (neutral to positive cash flow) than there is relatively little risk to holding even if process fall slightly more."

In today's market you need to put like 40-50% down to "cover the costs". Why would you want to put that much money into an investment that is "neutral to slightly positive cash flow"? You could put that money in the market and do much better. Plus investing in something like mutual funds requires much less work than real estate.

I'm not advocating timing the real estate market. I'm advocating avoiding real estate investing all together.

Never say never. While we're on the other side of the border where our real estate isn't going anywhere but up I'm keeping a close eye on the happenings in Michigan and if something looks like a good opportunity I'll buy it. If you're thinking of "rentals" then you really really really have to bone up on the current state landlord/tenant laws for wherever you decide to buy. You can start by checking them out online, your rights and responsibilities, the tenants rights and responsibilites etc. Ignorance of those laws when you're the landlord is asking for trouble if and when you get hauled to court or in front of a landlord and tenants commission. The thing is, they aren't really that complicated as they look, everything is spelled out how to protect yourself.

"In today's market you need to put like 40-50% down to "cover the costs". Why would you want to put that much money into an investment that is "neutral to slightly positive cash flow"? You could put that money in the market and do much better."

As already posted your percentage is to high.
Maybe you are in a lousy rental market.

You are forgetting about the leverage that financed RE enjoys on return.
With 25% down you have 4 times the value working for you for long term growth while someone else covers the carrying costs.
Even if you put 50% down, you are still leveraged 2:1.
Each 1% increase in the property value is a 2% return on your money.

While RE has ups and downs, it is still not as volatile as the stock market.
You DO pay for this extra safety with less return in some cases.

That's a good perspective. We've dabbled in RE for a few years now and I look at my purchases as just another investment like stocks or CD's and I move assets around in my portfolio depending on what's hot...........and what's not.

The risks, like any other investments are real, and the payoffs can be too. You need to look at the risks just like you would any other investment. RE can be a bear or bull market. Everyone wants to buy low/sell high and it helps to have enough experience to get those gut feelings and have them halfway accurate. The big difference in putting your capital in RE is that it may not be as liquid as some others. It's also an investment you will spend time keeping in optimal shape and throw money at until a sale.

"...throw money at until a sale."

That would tend to indicate a negative cash flow, unless the source of the money us the rent.
I set money aside each month from the rent proceeds to cover expenses.
I routinely cover PITI, plus a maintenance set aside.
One thing you really need to be able to do, especially in the early years of renting a property, is to perform the work and maintenance yourself.
Having to hire someone to deal with every little thing is going to eat a lot of money very quickly.

Brickeye, I don't rent out my properties. I know exactly at what threshold I need to move a property and still get a % return comparable to/better than another investment and turn them over before that point.

I am not a flipper, but in the early days I lived in them and renovated them and sold and used the equity to move "up". I never bet on home appreciation as a given over time like so many young folks do now days. I know a good deal when I see one.........there are bargains out there if you have a little kitty set aside to grab them when they come up and if you don't have to be in a hurry to have a roof over your head and the patience to wait for a real bargain.

Sometimes it's vacant land. Just bought a tract of it next to my home, and before that the DH bought a tract of commercial property and got a good return on his investment.

The last house I bought, I needed a home next to my mother's house because a relative was doing her caregiving. I was able to pay cash for one and get it very reasonably, my relative and I got it physically up to snuff and I did the major improvements like the heating systems, etc. and they lived in it rent free for four years and it's on the market now and I can afford to keep it awhile and "throw money at it" in the way of utilities/insurance/taxes until it sells and still make a better profit than if I'd stuck the initial purchase price in a CD. It was a win/win situation for everyone concerned.

When I said you throw money at real estate, I meant it's not one of those invest it and wait situations. The property has to be "nurtured" from beginning to end, in time or money. Even if you have renters and a positive cash flow. I won't even "go there" with renters.

"Brickeye, I don't rent out my properties. I know exactly at what threshold I need to move a property and still get a % return comparable to/better than another investment and turn them over before that point."

Then you are not an RE investor, just a homeowner.
As an investor we get depreciation and some other breaks not available to an owner living in their principal residence.

I have not set foot in a couple of my rentals for over a year.
I have good tenants. They are not that hard to find in the close in Washington, DC suburbs.
I have rented to congressmen and all sorts of government officials (even some foreign embassy folks) who need a nice place to live but do not intend to make government their lifelong career in this area.

Given that I don't live in my investments and expect to make money off of them and do when I sell them, I believe it does make me a RE investor even if it does not match your interpretation of one. Not everyone who buys and sells real estate rents their units out. In fact, I suspect more don't than do.

I'm glad you have good tenants. I don't think a congressman would look twice at any of my houses. I'm just a real person here not a millionaire. I have been a renter at points in my life, and I know there are good ones, but my son got burnt to the tune of damages to a rental unit he owned nearly equivalent to the value of his home. He won a court judgement and the occupants both quit work and went on the dole so he never got recompensed for his losses past what he could claim on his taxes, I suppose.

I'm not a professional anything when it comes to real estate. I enjoy reading the posts, however, from banking officers, flippers, homeowners and realtors. There is something in everything they have to say to be gained if one listens. In that respect, I have no desire to devaluate anybody else's perspectives nor diminish their imput because I don't consider them this or that......insert your label.

There is profit to be made in real estate, and I've bought and sold a lot of homes in my adult lifetime and never lost money. Anyone can take advantage of that "market" if they research it and the general monetary trends and aren't greedy. Done properly you can protect your interests and it often pays better than a paper asset. I'm comparing it to the same principle as any other investment if you don't know what you are doing, you can loose your behind and ruin your credit.

I'm a business woman in my own field and not easily intimidated but I can see where some posters to this forum would be when they seek advise and take responses at face value without factoring in the a responder's particular paradigms. It can be a very self-defeating attitude.

Hi Roxyl,

I'm just wondering what else could be done with that equity in our situation (like investments or acquiring a rental property, etc.)? Where would I find out info about this kind of thing?

EVERY market has opportunities, and generally the uglier & downer a market gets (especially BEFORE the actual recognition of reversal back upwards,) the sweeter the opportunities.

Successfully investing in ANYTHING is never obvious nor easy... or the opportunity wouldn't exist because the hordes would have already applied their buying pressure, bringing market equilibrium back to level again.

WHERE TO LEARN... truly, there are books, and seminars, and CD/DVDs, and workshops and bootcamps and compendiums and summits ad nauseum.

A) Check with your local county free-loan library... I guarantee they have TONS of top-notch books & materials by some/many of the most powerful and popular course teachers & authors. Look up Robert Kiyosaki as an engaging start. Look up Robert Allen also.

B) Check out your local real estate investor's club. They'll likely have evening meetings once or twice a month, for free, or entry fee in the teens. Don't be shy, don't be afraid to admit being a novice... r/e investors are notoriously extremely friendly (and regular, sown-to-earth folk,) GO!

C) Commit to meeting, interviewing, and finding several currently-active real estate investors (everyone has a different style, so you need to meet many to "discover" which style actually fits YOUR temperament as well!) Make good friends of them... go to coffee with them often... "pick their brains" (again, surprisingly, most private r/e investors keep very little secret, and are often willing to share what really works for them.)

I currently own 9 profitable income properties... and I have to tell you, the current home markets are so incredibly exciting for me as an investor!!!!! I expect to see more profit in my pocket from my own chosen investing style* this year (2008, I'm already weeks ahead in my mind,) than in all the previous 5 years combined!!! And I expect 2009 to be as much as double 2008!!!

* My style is to acquire properties with an eye toward seller-provided terms (paying them over time, and keeping their old financing in place when able,) rather than haggling/scrappling to lowball & pish everyone off. With generous terms, I can be generous in my buying price (often offering full retail... of today's prices (which will only be paid out in 3-5 years, of course.) I structure my acquisitions preferrably so I have 3-5 years to complete the terms with the seller. THEN I get tenant/buyers in place who will gladly pay a significant rent-to-purchase premium (because there are so few mortgage programs available for them anymore.)

The above may sound a bit complicated... and it takes understanding, to be sure (virtually no real estate agents I encounter fully understand what I am doing,) but it is EXPONENTIALLY EASIER than getting bloody in the fight to lowball people out of their percieved equity. "Selling price" is one of those hallucionatory numbers that people emotionally grasp onto... and it you let them KEEP it, they'll hand you almost everything else you want (which can significantly MORE than make up for it!!!)

Good luck, and repeat after me; "Learning Is Fun!!!"

Cheers,
Dave
The Dealmaker

"Not everyone who buys and sells real estate rents their units out. In fact, I suspect more don't than do."

I would bet that far more investors lease out than hold empty property for any type of gain.
It IS a loosing game if you cannot generate cash from investments, and more akin to just shooting craps in Vegas than actual planned investment.
Without a way to make some ongoing money from RE EVERY place becomes a money sink.
I do not know exactly how to describe what you are doing, but it sounds pretty far from actually investing and trying to make a return.
More like throwing money at a property and hoping it will increase in the short term, since the long term potential is very low.

I am sitting here laughing out loud and wondering what your issue is. You don't even have a clue what kind of gains I'm making or not making. The key word here is "empty" property. If you buy right, know your costs and know at what point you can actually move property.......it doesn't sit around for very long. What does matter is after deducting your costs, that when you get your return it is as high or higher than any other route in which you would invest your capitol. If it is, then regardless of which route you take, it's the right one for you.

Dave,

Could you please give an example that shows "generous terms", "hand you almost everything else you want" that you received when implementing your strategy as

"Selling price" is one of those hallucionatory numbers that people emotionally grasp onto... and it you let them KEEP it, they'll hand you almost everything else you want (which can significantly MORE than make up for it!!!)"?

Thank you.