Can I Make Money with Real Estate in a Bad Economy?
Question: Ethan, what’s your take on making money with real estate in a bad economy?
M.F. Apple Valley MN
The answer is yes…anyone can make money with real estate in any market. I’ve proven it…and so have a boatload of other savvy entrepreneurs.
But the key is refusing to think and invest like the “masses” do.
If you invest like the masses, your buddies, and realtors… you can lose your shirt, the kitchen sink and whatever else isn’t nailed down.
In 2005 the real estate was picking up steam as the “holy grail” for making money.
I’m not the “Great Predictor” or even a forecaster. But I’m not fooled by the masses, the media and so-called “experts”.
The reason I’ve avoided losses (I haven’t lost a dime in real estate since 2005) and managed to make money is because I’m not in a mindless stupor.
On top of that, I try using some horse sense when it comes to real estate investing, making money and business.
Horse sense is just sound, practical judgment.
W. C. Fields said horse sense is “The thing a horse has that keeps him from betting on people.”
Most of us have experienced the most recent real estate downturn in 2008 on some level. I know a ton of entrepreneurs who have been devastated by it.
But, the real estate boom (and bust) was predictable.
And I’m NOT a psychic master!
But if you had eyes to see, you could have known the real estate boom would never last.
Remember when I’ve talked about making money with real estate in the past?
Here are four key points:
1. Minimal risk
2. The ‘experts’ and masses generally get it wrong
3. Superior knowledge beats them every time
4. This knowledge is hidden by the politicians and media
“The fact experts and masses get it wrong with such regular predictability is the reason I have minimal risk; by doing the EXACT opposite to what they do”.
Most people involved in real estate prior to the crash were exposed to maximum risk, agreed with so-called experts, utilized inferior knowledge, and believed the media were telling the truth (not to mention politicians).
In other words, most entrepreneurs were doing the exact opposite of what they should have been doing…and therefore lost money.
I knew the real estate market and sub-prime mortgages were toast when……
On a walk near my home in Orlando I saw a cashier from the local convenience store drive into her three car garage attached to a $650,000 home.
Anyway, when I saw this gal pull into a three car garage in her Escalade, I knew the boom was toast. That was early 2005.
This is horse sense in action.
Granted, the nationwide real estate frenzy lasted another three years. But then it went kaput!
Can I Make Money with Real Estate in any market?
The masses were insanely bullish on real estate from 2003-2008.
In most cases, people were bullish because “on paper” they were making money hand over fist.
But the market collapsed….and a lot people, including pseudo savvy entrepreneurs lost a bundle.
We’ve learned about “perceived” and “actual” risk in this newsletter. Who else is teaching this stuff?
Let’s forget about perceived risk for a second and concentrate actual, real world risk.
If you want to make money with real estate in any cycle you need wise counsel….not conventional wisdom.
Here’s what I’m talking about…..
Most people never realize, or they refuse to believe they’re involved in hysteria.
How Do I Know I’m Involved in Hysteria?
One way to determine if you’re involved in hysteria is with Google.
We can all agree……Google is the “engine of the masses” … right? Almost everyone with Internet access uses it.
Well, if you Google the term “real estate” you’ll discover something interesting.
Ten out of the top fourteen search results are for real estate companies and realtors.
Their formula for making money in real estate is to “buy a house”.
The masses are telling you to “buy a house” or “buy a foreclosed house”.
We need to remove ourselves from the masses if we want to make money in real estate.
Another key to making money with real estate as I said is by using horse sense or wise counsel.
If you don’t have it you can get it. Proverbs talks about seeking counsel….
“Where no counsel is, the people fall: but in the multitude of counselors there is safety
This passage is actually talking about “wise” counselors.
In other words, most people think they’re “wise” ….at least in their own eyes.
But in reality, most of the counsel you and I receive is incredibly “un-wise”.
This is a long-winded response to your question…but sometimes you can’t cover this stuff in one paragraph.
Anyway, I’ll stop the Sunday School lesson!
One of the best places to obtain “wise counsel” is from people who’s ignored the “madness of the crowd” and prospered.
The “wise counsel” I’ve received over the years has been from people who ignored the masses and prospered. Many of them enjoyed phenomenal success.
Their success is not limited making money. They also had success in life … marriage, and family.
On top of that, they did this over a long period of time … not a couple of months or years.
How to Make Money with Real Estate
Here are my four keys for doing it:
1) Buy at super deep discounts
I criticized real estate companies for their formula “buy a house”. But the difference is buying at “super deep discounts”. Real estate companies will always show you their “listings” first, and are not interested in deep discount deals. You make money in real estate when you buy right not when you sell.
2) Be patient for the right deal. If you’re over anxious about doing deals you will lose money
Patient is waiting six months to a year for the right deal. You may find it in two weeks. But you must be willing to wait until you find the diamond.
3) Pay cash whenever possible
Heck…you can find a boatload of deals in Ohio, North Carolina, Arizona or Indiana for under $30,000! It takes a lot of effort to lose money on a house or property when you only spend $30k.
4) If you own rental property focus only on cash flow.
This is a BIG deal. People lost their shirt during because they didn’t make enough in rent to cover their expenses. They only focused on appreciation. If you focus on cash flow it allows you to hold properties even if the value of the property goes down.
Are Foreclosures Really the Key to Great Success in Real Estate?
The problem with most foreclosure properties is finding a clear title.
If you don’t have a legitimate clear title for a home, property or land it can be a major headache down the road….and a cash drain.
My good friend is a developer in Las Vegas. He recently performed a title search with a new company recently, and it came back “clear”.
However, the title company used old world methods and failed to discover a mineral rights lien on the property. Not good. This will be a major headache and cash drain for him.
Anyway, most of the foreclosed properties I’ve reviewed had varying degrees of problems including liens. I’ll cover foreclosed properties in another issue.
One thing about foreclosed property though…
There are viable alternatives to buying foreclosed property. Such as buying mortgage free properties at bankruptcy and estate sales.
The bottom line is the “masses” are living in Wonderland.
Granted, you can buy properties at super-deep discounts, improve the space and possibly sell them … “possibly” being the key phrase.
But let’s get real…
The fix and flip real estate market is tough and always will be.
But there are still incredible deals to be had.
I’m talking about deals where you obtain homes, apartments, farms or timberland for 30-60% (or more) off their asking price.
Patience is the key. Treat this as a ten-year business opportunity. And simply wait for a seller to agree to your terms, and then rent the property.
If you do it right you make sure you won’t be under water with the stupid thing, you can make money.
Location is Still a Key to Making Money in Real Estate…Even in a Depression
One friend once told me “Always think like a woman when it comes to real estate”.
He said woman typically buy real estate or convince their husband to buy it based on nesting instincts.
In other words, generally speaking, when a woman considers a home or real estate she’ll wonder how far it is to other kid’s homes, the supermarket, the playground, entertainment, and shopping.
My friend made a lot of money “thinking like a woman”.
He always bought, sold, built or acquired real estate which had easy access to the things a woman wants for herself or family.
Granted, some people are willing to live in the middle of nowhere.
But generally speaking good location is still a key to making money with real estate in a depression.
You also need to acquire property at super deep discounts, be patient for the right deal.
If you buy rental property your number one focus should be cash flow. Look at any possible appreciation as a bonus.