Investing Strategy & Tips
Time Your Real Estate Investment
By
Jan 28, 2006, 22:32

Almost everyone I talk to both in and out of real estate has a story about how they could have made millions if they only knew 10 or 90 years ago that property values were destined to skyrocket. This familiar tale is told countless times from coast-to-coast whenever real estate experiences a boom similar to the heady price gains of the early 2000s. But rather than acting on their impulses, the vast majority of investors and real estate onlookers sit by enviously as others get rich and achieve financial security.

The right timing can enable you to buy low and in a few years' time see your property significantly appreciate in value. But the
willingness to take some risk is equally important in deciding when to buy and how much to pay. Whatever you do, just be sure not to overextend yourself.

In a capitalistic economy, ups and downs - recessionary and inflationary spirals--are unavoidable. As an investor, you just have to hope that they're not too deep or too severe. But if you're looking at the long run, your experience, knowledge, and ability can compensate for the dips and act as a bulwark against financial ruin. Still, you have to foresee the changes ahead and put yourself in a position where you won't get knocked out of the box. I've owned my residence for 30 years, but if I wasn't able to make the payments on this house, the lender would foreclose on it just as quickly as anything.

Most people don't understand enough about investing in real estate to buy at the right time. Real estate goes in cycles. There are fantastic buys during the height of a boom and there are some terrible buys at the beginning of a recession. In general, the best time to buy is during a lull when people are anxious and prepared to bargain.

When there is a recession, the downturn doesn't affect all parts of the country in the same way. But when there is inflation, which occurs
when the economy is in a growth mode, it affects all parts of the country equally. Consequently, it is easier to find a bargain during a downturn than an inflationary period because during a downturn sellers in soft markets are willing to accept less than what the market had previously borne.

Recessionary conditions that cause soft markets are really the best time obr able investors to buy real estate. The reason is mainly that slow sales result in a large inventory of available properties. And when there is a glut of listings, competition forces sellers to make concessions they might not otherwise make. In a down market, it is easier to make a deal because sellers are eager to bargain. Such concessions might include:

* Deferring mortgage payments
* Accepting better terms
* Carrying a second mortgage
* Accepting a short-term, interest-only note
* Improving the condition of the property
* Lowering the asking price

Of all the above variables, I would worry the least about price. 1 figure that if I'm buying the property in the right location, 1 can afford to pay market value if I've done my homework. We're looking at the value of property as a long-term investment, so we're not particularly concerned about what we pay for it. We're more concerned about its growth potential and buying on the way up.

It's fine to buy property when it's available and when you can buy it, but it's a bonus if you can get an added boost from the economy by
having the right timing. As discussed in Chapter 4, there are all kinds of data available to determine the health of the economy--reports by the Commerce Department, from the Federal Reserve, the trends revealed by leading economic indicators, and so on. Based on the information available at the national, regional, and local levels, you have to determine in your own mind how the economy's going to respond.

If you read the papers, every time there's a downturn you'll notice that there's a lot of gloomy prognostications of how the market is
going to collapse. Those of us who have lived through the Depression and have seen all the recessions that followed know that the market has never done that and there's no reason why it will. Despite limited setbacks, the economy has adhered to a strong growth pattern since World War II and will continue to grow in the future, spurring continued investment in real estate.

How do you know when the country is reaching the end of a recession? Well, let me pose another question. How do you recognize the end of a boom? Economists, the supposed gurus of free enterprise, are always divided on these important questions, and .they're all intelligent. The slowdown of the real estate market in late 1989 took a lot of people, including the industry experts, by surprise. In the final analysis, there is no exact formula for determining what is going to happen. Before the end of the Cold War, how could you have known that the Berlin Wall would collapse even six months before it did? In the summer of 1990, no one was able to predict that Iraq would invade Kuwait--not even the CIA!

Despite the unpredictable character of modern life, there still are some general rules to abide by when investing in real estate:

* Evaluate factors that affect economic strength and weakness. When you detect weakness, don't buy.

* If you detect signs of an upturn, start to invest. Acquire as much as possible--sacrifice today will be rewarded tomorrow--but don't spend money on land and improvements unless you can see a return in rent.

* When prices soar so high because of appreciation that you can't afford to buy any more, start putting money into fixing up the properties that you already own.

The best time that anybody can make a real estate investment is when you can see change, namely, when you can see change for the better. We
live in a worm of change and the more dramatic the changes are, the more golden the opportunities will be.  Generally speaking, changes are beneficial to real estate values if they are positive in nature. 

Timing your investment to get a boost from the economy can be very disantageous. Inflation can make a foolhardy investor look like a wise man because he has hopped on the bandwagon of ascending land values. But the investment made before or during a depression can make a wise man look like a fool, and there is nothing anyone can do about it.

The only way you can know whether the time is right or not is by doing research. But even after you gather all the data, listen to all the
lectures, and do everything else, you have to go with your gut feeling of that you think is going to happen. To take advantage of what's going to happen, you have to make a decision to act. Most people are afraid to try.

But if you act on your knowledge rather than procrastinate, you won't be catching from the sidelines as others make their fortunes. Imagine the investor who could go to Texas today and buy a 72-unit apartment building for $10,000 a unit, or whatever the going rates are, with $50,000 or $100,000 down. If it is done right and the market starts to heat up, which it will, the property value and rents could go up with it. And if we have prosperity like we could have over the next 20 years and the investor has a structured activity in which he or she just sticks to a pattern of making the payments and fixing and maintaining the building, he or she will be wealthy in 20 years. I think the best time to take a chance is when you're young, so if it doesn't work out you can start over again and not be set back for life.

Central to an effective strategy is determining the proper time to make an investment. Do you know what the only difference between salad
and garbage is?  As long as you were in the right position at the right time, you would have made a killing. It seems self-evident that the U.S. economy will experience favorable growth over the next three decades. The tremendous need for entrepreneurial services as well as all types of goods and materials available in America will put the United States in the dominant position to help stabilize the economies of formerly communist countries. The United States has an historic opportunity to take advantage of this foreseeable global economic activity. And, I believe, the cities and communities that will be the main beneficiaries of this increased activity are those with information
industries, high-technology centers, and business services that can produce these results.