Making Money in a Slow Real Estate Market

Kevin Kiene
Supply & demand cut both ways, my fellow real estate junkies. Demand has plummeted, so what do we do? Swim against the tide and start buying, of course.

The Purchase Plan: Double Distress

Prices are down, but if you're a real estate investor worth your salt, you still want a killer bargain. So here's the game plan: where others see distress, you need to see dollars.

The purchase plan involves both distressed sellers and distressed properties. Let's consider the case of foreclosures for a moment; why does real estate sold through foreclosure auction sell for less? Because investors can't get inside to see what kind of shape it's in. But there is no question that buyers at foreclosure auctions, especially in today's market that's far oversaturated with them, will score a good deal, provided they know what kind of property they're buying.

So to take maximum advantage of a distressed seller sale by foreclosure, what safer method is there than to buy a property that you already know needs full renovation? There's a discount built into properties needing renovation, because of the hassle of renovating them. Those hassles, which you'll have to be adept at managing, include maintaining relationships with several of each of the following: hard money lenders (for quick settlements and renovation loans), small, local banks (they're far cheaper than hard money lenders and fill the same niche, but are pickier), licensed contractors, inexpensive handymen, and low-cost permanent lenders if your renovation loan is short-term. A distressed property in shambles, sold through a distressed sale, will effectively give you a double discount, which will in turn create maximum cash flow for the next stage: getting paid.

The Payout Plan: Deferred Gratification

We've already established that you have to go against the grain if you want to make money in a slow market like this one. With a depression in demand and an abundance of supply, you don't want to sell, so what do you do? You build your real estate empire, and watch money flow into your account every month as a landlord. When the market shifts in a few years, you'll be poised to sell all those distressed properties bought for a steal, and make a fortune.

There are some challenges involved in being a landlord, so be prepared. First, your money is not liquid; these investments, by their very nature, are long-term and you will have to wait for the market to turn before you can sell. Second, you'll need to be capitalized, both because your other money isn't available and because rental properties will always throw surprise expenses your way in the form of maintenance, repairs, vacancies, and lawsuits. As a final note, it is a wise and happy landlord who hires a property management firm to assume the headaches for them.

Remember the first thing you learned about money: buy low, sell high. The real estate market can and should be your ally, not your enemy; ride the highs and lows alike, and right now that means buying as cheaply as you can and holding the properties as a landlord. Good luck!

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