Don’t buy into all the doom and gloom stories from the media. Learn how to profit from them. Many investors continue to be very successful in the real estate business by following the philosophy, Don’t be afraid to be a “purple snowflake.” So try these strategies. You can make a great deal of money in a down market if you stand out, show that you are unique, and most importantly, set yourself apart from your competition by being “a purple snowflake!”
Strategy #1: Ride the Downturn — Don’t Sell
Yes, don’t sell. Good times or bad, my advice is always to hold on to a property if you can. Your wealth will come from holding on to real estate, not selling it. How serious is the problem really? Let’s say the home you live in, your rental property, or the property you bought as a “fix and flip” goes down in value. Well, if you weren’t planning to sell right away, would it matter? Hang on until the market comes back. Look at the historical records of the property value where you live and that will reassure you. Realty-Trac or First American Data Solutions provides this data, or you can ask your local real estate professional for help. Historically, a real estate market will always come back.
I know one investor who sold his inventory of a few single family homes during the downturn and promised he’d never buy another investment property again. He rented most of these properties for a positive cash flow. A couple of them were breakeven. When the market turned south and he found himself upside down on some of the houses, he panicked and sold all of them. In some cases, he actually needed to come up with money to close the deal.
I didn’t understand why he felt the need to sell. On the whole he still had a positive cash flow. By selling, he guaranteed the loss. Someone bought his properties (I wish it had been me) and they are going to wait out the downturn to take advantage of the upswing. Why couldn’t he have done the same thing?
It’s simple: He was afraid that the market would get worse. That’s the meaning he gave to the down market. He was afraid that his tenants might move out, and even though there are generally more renters when a market turns down, he was afraid he couldn’t get more tenants. He made his decision out of fear.
Strategy #2: Run your Investments like a Business
Are you running a business or did you just get lucky and acquire a bunch of properties? Are you one of those people who bought a few pre-construction deals and made a whole bunch of money? The doomsayers who say the end is coming for real estate are often people who’ve gotten lucky. They’re now afraid they can never recreate that wealth, and so they’re just plain afraid of everything. They realize, on some level, they had nothing to do with the wealth they’ve gained, and live in fear of losing it.
I’ve made millions and I’ve lost millions. When I first made money in the stock market I didn’t have any understanding of the fundamentals. I just gave my portfolio to my brokerage company and they managed it. I didn’t have any control or understanding of how any of it worked. When I lost it, I really panicked, because I couldn’t recreate it. I had nothing to do with creating it in the first place, so I wouldn’t even know where to begin to rebuild.
I promised myself that next time, I’ll take full control of my money and never do anything I didn’t understand. You can take all of my houses away and blindfold me and drop me in any U.S. city, and I’ll recreate my wealth a lot faster than I did the first time. Having strong business skills means you have the ability to look at any market in any climate and figure out what to do next without panicking. Remember that real estate is nothing more than a product. If you’re good at a business and know how to thoroughly research a product and its market, you can sell hammocks or you can sell a house. The fundamentals of selling are the same.
Of course, not too many people rent hammocks and hammocks don’t appreciate. That’s why real estate is such an attractive business for so many people to jump into. That’s also why there are so many catastrophic failures. Real estate can be one of the most forgiving businesses in the world when the market is going hot. Even bad investors can get wealthy without having to know or apply the fundamentals of business.
One of these fundamentals is to look for a way to create more value in what you’re selling. Remember that regardless of whether you’re renting a property, lease-optioning it, doing a rent-to-own, or straight out selling — you’re selling something. And, if no one is buying (or renting), ask yourself why. Is there a way to add more value by making it more desirable for the buyer/renter?
Some ideas might include changing the property — adding additional features that no one else has or making more favorable terms for a potential buyer. This is the time to be creative, and don’t be afraid to be a purple snowflake.
No matter what type of business or investments you have, you need to have fundamental skills. One of the biggest benefits of investing in real estate is all the great tax breaks. And you’ll get them no matter what happens with the market. Of course, I don’t want you to do anything just for the write-offs. You have to make money, too. At least in the long run.
Are you sure you’re getting all the tax benefits for your investments? How about your business structures? Are they set up correctly, and are you operating them in the best way possible? And, probably the biggest problem facing real estate investors: Are you accounting for your real estate correctly? If you don’t do the accounting right, you’re going to miss the write-offs.
Remember, you can make money in real estate regardless of which way the market goes. The key is to have good business skills first.
Strategy #3: Invest in Your Education
During slow times, tool up. It’s not going to be like this forever. Get yourself ready for the next cycle. Use any extra time to further your continuing education. Take courses not just in real estate topics (e.g. short sales, probate, foreclosure), but also general business skills like management and accounting. Attend real estate seminars so you can learn and network.