5 Investor Tips in a Slower Market

“When markets go soft, things get interesting. Even though an abundance of opportunity exists in a soft market, many people still won’t take action. Why is this? Because by nature, people follow a ‘herd’ mentality. Most people believe that for something to be the ‘right’ thing to do, many people need to be doing it. Actually, this is not true at all. … An experienced insider’s secret — that many folks don’t want you to know — is this … When the markets go soft the playing field is being ‘reset.’ Short-term opportunities are removed and an abundance of opportunity gets created for the seasoned investors who know how things really work.”

1. Timing is everything. Enter the market cycle early. “When it’s quiet, when the media isn’t saying ‘record levels of appreciation,’ that’s when you want to jump in,” the authors write. As billionaire oilman J. Paul Getty once said: “Buy when everyone else is selling and hold until everyone else is buying.”

2. Get financially ready. Before you buy, consider holding costs, tax implications, and cash flow potential. Many things can go wrong when buying investment properties — such as a vacant rental or a property that won’t sell. Have cash reserves (get a partner if you don’t have any) and you’ll be prepared to ride out any market cycle. Identify your risk level and what you want: For example, an investor who wants to turn a quick profit with low holding costs would want to sell their new-home property before construction is complete. On the other hand, an investor looking for a bigger return with less capital gains tax would want to hold the property until after construction is complete and keep it as a rental property for at least one year.

3. Buy and hold. In a distressed market, this can be a smart move. A buy-and-hold strategy can help give the property an opportunity to appreciate over time. Buy at the right price, though. Compare the home’s price to what homes are selling for over a reasonable time period in that
community and what you expect is the lowest price the market will reach. Get in at that price. Consider lease option investments so you can rent the property to cover payments, having the property practically pay for itself each month. Also, continue to pay down the mortgage and eventually you may even have the home paid off — an ideal position for an investor!

4. Find best deal. In a slow market, you can get great deals — and some extras. Builders overbuilt during the housing boom, resulting in high inventories of unsold properties. Now, many builders report slashing prices, offering free upgrades, absorbing all financing points for their buyers, and paying closing costs or fees. Extras aside, other good investment properties include homes five years old or less and properties in the $500,000-range, which can particularly be desirable to a large pool of buyers. Also, look for a property in an emerging market. Some indicators: sales of existing homes and new construction permits are starting to trend upward, supply is steadily dropping, mortgage loan defaults are high but starting to fall, days-on-market move below 90, and low interest rates.
5. Have an exit strategy. Have a selling strategy in place before you buy so you’re not just randomly banking on the property appreciating and then doing a quick sale. Come in with a solid selling plan. For new construction investing, your selling options might be to assign your purchase contract during the construction period, sell when construction is complete, lease and then sell, or a lease option. Reduce the taxable impact of selling your real estate investments by talking to your tax adviser about a 1031 exchange or self-directed IRA. “Know how you will get out before you get in!” we advise.
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From the Book: 5 Investor Tips in a Slower MarketSlower markets can offer rich opportunities for investors: real estate sellers are more open to negotiate and lower home prices — and combined with low interest rates — can help you get properties at bargain levels. Yet, some buyers are reluctant. “The market may not look perfect,” the authors write. “This is why prices haven’t taken off yet” — and why you want to get in before they do!

Quick SkimThe slowdown in the real estate has sent some investors fleeing from the market. But those bailing out may be missing opportunities, say the authors of Making Hard Cash in a Soft Real Estate Market (Wiley, 2007). There are still big bucks to be made — even in a down cycle. In fact, authors Wendy Patton and Justin Ryan argue that “more money has always been made in a down market than in an up market.” They highlight how investors can snag the best buys, master market-timing and risk management, and prepare finances — all to better help you become a savvy investor in any type of market.

Top 10 Ways to Beat A Sluggish Housing Market

FrontDoor.com's Top 10 Ways to Beat the Sluggish Housing Market
By FrontDoor.com Published: 12/21/2007

Don't let the slower market get you down. Whether you're a home seller looking for offers, or a homebuyer facing stricter loan requirements, rev up your real estate potential with these helpful pointers from FrontDoor.com.

FOR SELLERS:
Give your house a makeover that adds value and keeps it up with the Joneses'. That doesn't mean you should run out and install Italian marble. But if hardwood floors are the norm in your neighborhood, replace the carpet. MORE...
Use the secrets of staging experts, or hire one. Staging can be as easy as a fresh coat of paint, new cabinet hardware and strategically-placed lighting. Think of it as a creative, inexpensive facelift for your home.MORE...
Find out what's wrong with the house and get it fixed. Don't wait until that serious buyer finds faulty wiring or a termite problem and then pulls the plug on the deal. Be proactive. Get an inspection before hitting the market.MORE...
Come up with a comprehensive home-selling strategy. Selling your home in a buyer's market requires a well thought-out plan with accurate pricing, targeted improvements and focused marketing and exposure.MORE...
Hire an aggressive, well-connected real estate agent. Find an experienced agent with a proven track record and knows how to pound the pavement. In this market, name recognition is important, so find the go-to person for buyers and their agents in your community.MORE...
Help a buyer buy it. Offer incentives that put money in the buyer's pocket, such as buying down the interest rate, absorbing more of the closing costs or offering seller financing. MORE...
Consider renting or offering a lease option. Minimize the impact of two mortgages by renting your house out until you find a buyer. Or offer a lease option to a motivated buyer who doesn't have enough cash to buy a home outright.MORE...
Make the house move-in ready. Throw in the furniture, flat-screen TV, washer/dryer, appliances, backyard jacuzzi AND the kitchen sink. The less money a buyer will have to shell out to furnish the house, the higher the perceived value.MORE...

FOR BUYERS:
Use calculators and tools to evaluate your potential purchase. Be careful not to get caught up in the hype of a buyer's market. Make calculated decisions with FrontDoor.com's "Return on Investment" tool, for instance, which helps you determine your potential IRR (internal rate of return) on a property. MORE...
Evaluate and boost your financial profile. If you're having trouble finding favorable terms or interest rates on a mortgage, make yourself more appealing to lenders by boosting your credit score. MORE...