Investing in Real Estate … Now?

Through the recent boom years of yesterday, the recession of today and the recovery of tomorrow, when is the best time to invest in real estate? As a user-buyer, this is obviously a good time to take advantage of today’s real estate prices. If you’re looking at real estate as an investment — an alternative to stocks, certificates of deposits, etc. — you know you can buy low, but can you make a profit with these values?

While I don’t think we’ll see the wild speculation of the mid-2000s again for many years, I do believe real estate should be seriously considered for long-term investments. I own several investment properties, and I look at them for a holding period of five years or longer. While some people can still buy and resell properties (flipping) and make money, I believe in this market, holding on to properties and not relying on the flip to make money, is the safer bet. And, if you’re investing, you want reliable, right? Here are some property types to consider if you’re interested in investing in real estate.

Rental Homes

I have added some well-located, mid-priced homes to my personal portfolio during this downturn while prices are down and interest rates are low. These types of homes have served us well over the years because there has been a strong demand for these nicer homes. While the return and cash flow on a monthly basis is not great right now, I think these properties will be the first to rebound, and we expect to make our money on appreciation and equity buildup through debt reduction.

Commercial Properties

I believe commercial properties are still on the early stages of their downturn. When I think back to the mid-1990s during the S&L crisis when commercial properties were last in the tanks, most people (including me) were afraid of the negative cash flows from mostly empty retail and office spaces. It takes nerve and holding power to buy these properties with substantial negative cash flows and hold them, but I later looked back at the buyers who had bought these properties for their current cash flows, and as the market recovered, they leased them and enjoyed a strong positive cash flow within just a few years. They also sold these commercial buildings for handsome profits.

Second Homes

The second-home market has also been impacted in most areas of the country. There are some great values out there. As strictly an investment, many of these properties may not make sense right now, but if you can justify them as a user, the prices will come back and can be sold for much more than today’s prices. As strictly an investment property, it may not make sense since they may not come near cash flowing, and after you factor in the next several years of negative cash flows, the appreciation may not leave you with a very high return. With these, it is probably best to factor the enjoyment you have with this property in the meantime.

It’s hard to buy when everyone is scared. It’s hard to buy when everyone is selling. In the downturn of the 90s, I witnessed people step up, go against the conventional thinking of the other investors and buy quality real estate. I also watched as these people made unimaginable returns on those investments shortly thereafter. It was an unprecedented downturn and an opportunity to make money. As is today!

What types of properties would you consider as an investment? Why? How do you take those properties and turn them info a profit?

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~ by Craig King on August 10, 2010.

One Response to “Investing in Real Estate … Now?”

  1. Thanks for the great post. I look forward to more.

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