Strategies for the Next Investment Cycle

[Originally published in 2003]

Welcome to the year of confusion. A whole different marketplace from last year, isn't it? As real estate investors, there are many issues to consider before we really develop our business this year.

Whether you buy/sell or buy/hold, buy mortgages, or lend money, we need to take what's happening not just in our marketplace, but globally into consideration.

Have you given any thought to the impact of your business as it relates to serious economic issues such as:

The overall economy

There is growing fear in the marketplace. I have traveled to five different areas of the country. In each area I have tried to get a feel for the what is happening in that location, so I can write to my subscribers and they can take advantage of current events to increase their bottom line.

Your marketplace

In certain markets, foreclosures are up, and short sales (getting the lender to discount the mortgage on a loan in default) are being tested. A few of my students are trying this as I write.

Creative ways of doing business

Those of you who have recently heard me speak know I discovered a company that is making a killing doing lease options with a twist. Though I don't agree with the returns this company makes, conceptually the program, if modified, could be a good one.

Vacancies

Vacancy rates are on the rise, especially in the commercial real estate markets, like apartments and commercial buildings. Where I live apartment vacancy is at 10%. All said, real estate is still a good investment. Why?

For one, where are investors going to put their money? The stock market has taken a severe beating, and I don't think it's over yet. Many individuals have lost millions in retirement dollars due to the market conditions. I don't expect this to improve, especially if we go to war.

Another reason: Should inflation rear its ugly head, which would not be entirely surprising, you could increase rents. If deflation occurs, you could reduce rents and still have cash flows. Let's face facts: Everyone needs a place to live.

A third reason: With increased layoffs, individuals will try to downsize into properties that are more affordable. A great opportunity for those who want to do 1031 exchanging and upgrade their portfolios.

Many investors are buying property overseas. Though they may be concerned with currency devaluation, overall they are betting are on a higher return in a foreign market. I will be addressing foreign real estate investments at the CRE Online Convention.

So I ask you, "Whatcha gonna do?" Here are my top five strategies for preparing for the next investment cycle:

1. Refinance

If you are leveraged at higher interest rates, refinance everything you can NOW! Or pay off the debt. The best returns on your investments are properties that cash flow.

2. Know your own demography

This is more important then ever. What is happening where you live? I recently attended a conference for Northern Colorado. The speaker, the owner of a large real estate company in my area, was overly optimistic. My lender was also at this meeting. She and I just exchanged looks. Double check published facts; they may not always be in your best interest.

3. Know current property values

Pull data of sold information in the area where you currently invest. Whether you buy/sell or buy/hold, this information is a barometer of your immediate investment strategy.

4. If you are a landlord, raise rents

Even if it is only $5 per month. Don't get into the situation that because things maybe tight in the economy, you elect to forgo a rental increase. If you don't raise rents you could eventually be stuck in a negative situation. Plus if you raise the rent $5 per month, that's $60 per year. It's not worth the tenant's effort to move.

5. Keep looking for opportunity

We all live in areas where if we look hard enough, we'll find a deal. Don't be afraid to be creative with your offer. Remember, the price of a property is the sellers first offer.

Nervous investors make poor decisions. Educate yourself now. Be open to new ideas and develop a plan for never having to start over. After all, isn't that what life is about--moving forward and preparing for you own future?

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