How to Make Money Investing in Real Estate in Any Market
Taken from www.realestateinyourtwenties.com (http://goo.gl/3KLYk)
Did you hear that the Real Estate market is about to tank again?
Me too. I’ve also heard it’s on a rebound about to be the most prosperous time we’ve ever seen. Others say its going to stay stagnant for the next twenty years.
So what is the market going to do?
Fail? Surge? Stay?
While it’s wise to try to look to the future and predict where it’s going – the simple fact is that we can never know for sure. The market has ups and the market has downs. It’s this fear that causes a lot of people to stay away from the real estate market and keep their money in savings accounts, stocks, and other places.
Good!
More for me…
Why the Market Doesn’t Matter
For most investors, “timing” the market is everything. When they miss that timing (like five years ago) bad things happen. What kind of bad things?
- Foreclosures.
- Bankruptcy.
- Unemployment.
Yeah, those bad things. However, successful investors that are in the game for the long haul know a simple truth that both guides their investments and keeps their blood pressure down:
Money can be made in any market.
The Key To Making Money in Any Market
Making money in real estate for the long haul is not about timing the market. The market will go up and the market will go down. This is expected and good for the economy. It keeps prices and policies in check and helps to clean out the gurus who spout bad information based on bad timing. The way to make money in any market doesn’t rely on timing the exact top and bottom of the market.
Making money in any market is done by one simple word:
Math.
As a kid I loved math. I know that makes me a bit of a nerd – but I honestly loved it because it was always true. Unlike art, gym, writing, or even science – math was never based on opinion. Math is true because there is absolute truth. Two plus two always equals four.
It never equals five.
This is why math is the key to making money in a down market. If the math is right, then it’s right.
Let me give you an example of what I mean.
If you buy a house that you want to “flip,” but the market drops suddenly – you’re in trouble. If you had $30,000 in equity and the market causes house prices to drop $40,000 – then you are underwater. This happened to millions of people across the world with their own homes over the past several years. It’s sad, and difficult, but very common today.
On the other hand, if you buy a property that produces $400 per month in cashflow every month – it doesn’t matter who is in the White House, what the national debt is, how many children Tom Cruise has, or how many foreclosures are occurring in the country. That cashflow is coming in regardless.
Final Thoughts
Obviously there are factors outside our control that could affect things. Vacancy rates could increase, a tornado could blow down the house, or rents could simply decrease. This could affect the bottom line, of course. However, most of these issues can be easily managed (insurance, increased advertising, rent adjustments, etc).
I’m also not suggesting that flipping houses is out of the question. I still flip and I know a lot of great investors who do the same. However, flipping requires proper math as well. I recommend having multiple exit strategies so if external circumstances change – you can change your exit as well. Additionally – any property I intend to flip must be able to hold its own as a rental should the need arise.
The point is – by sticking with math that works and not playing a giant game of blackjack with homes you are able to ensure profit when the market is bad, when the market is good, and when the market is stagnant. Investors are always tempted with dangerous strategies to make more money – but the investors who succeed in the end are the ones who stick with proper math in the good times and the bad.
What do you think? Have you ever used “bad math” to invest in real estate? Or is fear of another real estate slump stopping you from investing? Let me know in the comments below! (That rhymed…)
