Dean Graziosi Real Estate Blog

Learn to spot unique market opportunities and geographic target areas and you can quickly multiply your profits in any market cycle.

According to a recent issue of Personal Real Estate Investor magazine, cash returns on real estate have outperformed Wall Street for more than 75 years in a row, making real property one of the most dependable and lucrative portfolio assets in United States history.

Investment Fear versus Ordinary Homeowner Experience

But most Americans shy away from real estate deals except when purchasing their own homes. For one thing, it is a common misunderstanding that real estate investments always require a substantial financial commitment and years of experience and professional insight. People are afraid to get involved because they don’t have enough cash or know-how. Meanwhile others get into real estate on a shoestring and gain valuable knowledge in the process. And people tend to stay out of the real estate game when prices are falling, although that can – and usually is – the most profitable and less cash intensive time to participate. The bottom line is that most consumers don’t know enough about real estate physics – the forces that shape its moves and create profits – so they deny themselves a fast track to wealth and prosperity.

Yet despite their reluctance to get into real estate investment, most homeowners acknowledge – rather ironically – that their own home represents the best investment they’ve made in their entire lifetime.

And when they bought that great investment, they did much of the work themselves and just left the highly technical procedures and nitty-gritty details up to lawyers, brokers, building inspectors, and mortgage companies. In other words, anyone who has ever owned a home knows more that enough to successfully invest in real estate. Although they don’t often recognize it, they have already proven that they can invest for success, because they did it when buying their own residence.

Which underscores two important ideas:

1) Real estate is a sound investment, and most of us have realized that through personal experience.

The average homeowner not only benefits from accumulated equity – our monthly mortgage payments are an automatic source of savings – but when housing prices cycle upward, property values rise and further increase and compound the return on investment.

And owning the right property can be a good way to build a nest egg, without much of the downside risk that stock ownership entails. Property investment has historically offered compounded returns backed up by substantial physical collateral, unlike many less tangible kinds of investment.

2) Most of us already know enough to invest successfully in real estate, as long as we have appropriate assistance from specialists or professionals along the way.

To properly build and maintain a real estate portfolio, one simply needs to apply the same basic principles that homeowners understand through their own experience of buying and selling the houses they live in.

When shopping for a home, a buyer first shops for a reputable and knowledgeable Realtor. Similarly, those embarking upon investments in real property are advised to first locate a real estate investment advisor, teacher, or guide who can evaluate one’s goals and offer strategic advice, practical guidance, and critical information. You can even get it from a book or DVD, as long as the advice is sound and not just get-rich-quick hype.

Many novice investors started out with only the home that they lived in and had no extra funds to invest. But through a series of calculated stepping stone purchases they were able to reach some of their short and midterm goals while continuing to achieve the balance of their long-range goals. Over time they soon developed successful, diversified, stable real estate portfolios – and became truly rich.

Geographical Diversification and Market Physics

Diversity is always a good idea when it comes to investments. But most people have a narrow definition of what it means to diversify, because the natural tendency is to buy real estate nearby. Owning down the street can, for instance, help to avoid long distance relationships with tenants. But investors who restrict themselves to one geographical area may, however, miss out on ripe opportunities elsewhere. Focusing only on one city can be rewarding and convenient, but expanding to other locations can be just as easy if you rely on help from others such as Realtors and property managers. Buying property in one particular part of the country limits an investor’s options, and is similar to investing in a single mutual fund rather than several.

Sometimes, for example, the markets in Texas, California, or Florida may be played out and experiencing a slump. Meanwhile those in Ohio, New York, and Arizona may be going gangbusters. It is important to realize that real estate is somewhat reciprocal, and markets often act like a seesaw. While some regions may sag, others might spike. This kind of up and down momentum doesn’t just happen to all of the properties in the USA at once, in other words, but will being happening simultaneously – somewhere or the other – at any given time or during any given overall cycle.

We are in a buyer’s market in 2008, for example, but some pockets of the market are experiencing bull markets and prices are rising. During the red-hot run-up of prices back in 2004-2005, the media focused on rising housing prices. But during those years some regions of the country offered great bargains in foreclosures. Money can be made both ways, at any time, if you know how to ferret out the up and down markets and use them to your investment advantage.

Buy and Rent to Double Your Money

Another example of market dynamics that is seen vividly in 2008 is that when the seller’s market drops, the buyer’s market profits – and so does the rental market. Buy a foreclosure at a bargain price and you not only get a great deal on a home, but you do so at a time when the seesaw effect of the markets puts upward pricing pressure on the rental sector. Because so many people are losing homes to foreclosure and moving into rental units, the inventory for rentals shrinks in direct proportion to the increase in foreclosures. Since good rentals become more and more scarce, landlords are able to raise their monthly rental prices and make money.

Buy a foreclosed home and you get a house at a deep discount. Turn around and rent it into a rising rental market, and your tenants will pay enough rent to cover your mortgage with extra income left over. Reinvest those additional funds to buy another foreclosure and convert it into a second rental property and soon you have amassed a large and diversified portfolio that is not only paying for itself but funding its own expansion. Get rich quick schemes may not exist in the real world, but in a rare market like the one the USA is experiencing in the USA, those who are smart can definitely get rich in a relatively short amount of time with only a minimal initial investment.

Buying into one market and then capitalizing on the other at the same time offers an investor a double opportunity for equity – and twice as much profit potential. The market equilibrium functions much like the law of physics that explains that for every action, there is an equal and opposite reaction. And while it is true that within the real estate business “location is everything”, real estate investors have the freedom to operate within a geographically dispersed market to take advantage of all the ups and downs and play them against each other for larger and more lucrative profit margins.

To respond to the all of the influences and opportunities in a timely and successful fashion may require the help of others such as Realtors who are familiar with their local areas. Investors can easily become fixated on their neck of the woods and develop a skewed view of the market. But by branching out, the possibilities become limitless.

Just because you like a certain location does not mean that particular market is the best place to concentrate your efforts. What is more important is to identify what the market wants and what people are buying, and then invest in that type of property – whether it is in your own backyard or on the other side of the continent.

Make Twice the Money in Any Market – Especially Bad Ones

To make money within a bull market is not difficult, and it can be a source of great encouragement to a novice. But what inexperienced investors fail to comprehend is that bear markets – especially extreme ones – offer the same, if not more, potential to make money. Whether the pressure is exerted upward or downward is not important. What counts is that the physics of the market creates extreme swings. Houses get over-bought or over-sold, and that causes prices to get out of whack in relationship to actual values. Those who capture the equity that naturally appears during those drastic shifts make money, whether the market is moving up or crashing down.

Now add another force or factor of market physics that involves geography and prices. The value of the dollar goes up and down, usually based on interest rates. If rates are high, foreigners buy less American goods because they get less bang for their buck. If the dollar is weak, however, we sell more goods because they are considered cheap. Right now the dollar is exceptionally weak, because the Fed has lowered interest rates down to around two percent in an effort to stimulate local borrowing to boost the housing economy.

If you travel to Canada, your dollars will only be worth about 75 cents, because the U.S. dollar is weak compared to other currencies like the Canadian dollar. The euro – the European equivalent of a dollar – is even stronger against the dollar. That means that if you go to Europe and buy a soft drink you might pay twice as much for it as you would here in the USA. Meanwhile China’s money is still a bargain, so Americans – despite the weak dollar – are buying tons of Chinese products at cheap prices. So the point is that monetary markets also experience the ups and downs and physics of economics. But that affects real estate investment and creates its own set of opportunities.

Let’s say, for example, that you buy a foreclosure now in the USA. You can get historically low prices, but Americans are experiencing tougher economic times so you may not find lots of buyers willing to pay a higher price. But you could advertise in foreign papers in Toronto for that warm and sunny condo you picked up for a bargain price in south Florida. To Canadians a $100,000 can be had for $75,000 because their dollars are stronger right now. They can pay more without feeling it, so selling to them may mean you make more – even during a buyer’s market. You can even deal with real estate agents in other countries to make money by taking advantage of good times elsewhere when times are worse on the home front. It is just like buying low when the market slumps in Florida and selling high a month later to somebody in California because their economy is doing better. In other words, every down cycle is accompanied by an up cycle, and investors who spot one market and then go find the opposite market can make twice as much money twice as often.

The Party Never Ends for Alert Investors

You don’t have to find foreigners to buy your houses to make money, although you can if you want to. That is just an example to help demonstrate the various ways to capitalize on market forces. You can apply the same concept to buying cheap houses in a foreclosure market and immediately renting them out to tenants because it is also a hot rental market. The point is that money – lots of it – can be made anytime, anywhere, if you apply the laws of real estate physics.

Within the past few years we have heard a significant amount of cocktail party conversation, dedicated to the topic of fast money made overnight in real estate. Now that the housing market has cooled off, the bragging rights have diminished. For some, the party is over. But that is because they don’t know how to identify investment opportunities in “down” markets. They pull out of the market, leaving more opportunity for smart investors who know that the worst markets often generate the best possible chances to acquire wealth with the least amount of effort. Buying low and selling high you will always come out ahead. But the trick is to have the vision and savvy to jump in and buy while everyone else is selling.

No investor ever went broke while making a profit, no matter how small. Multiply those margins and you can make even more, while spending the same amount of time and investing the same amount of cash, energy, and effort.

Tips for Working with Out of Town Brokers

Before working with a long-distance broker, it helps to know how to pick one who will offer the best service.

· Check their credentials and references to find out how long they have been licensed, how many states they are licensed in, and if there have ever been any complaints or legal actions brought against them.

· If you work with a local agent, ask them for an out of town recommendation. Many Realtors cooperate with others when relocating clients, so this can be a great way to connect with a reliable Realtor in another town.

· Look for those who specialize in foreclosures or REO homes, and get on their mailing list so that they contact you when fresh leads come online and get listed.

· If you intend to use them to buy property, make sure that they aren’t related to or biased toward the seller.

· The easiest and most foolproof way to do that is to work with exclusive buyer’s agents – those Realtors who are forbidden to work for sellers and are duty bound and legally responsible to represent buyers and negotiate the best possible terms at the lowest possible price.

· As an individual investor, it is also important to find out if there are any hidden fees or extra commissions. Profit margins can shrink if they are shared with too many consultants, financial advisors, and other interested parties.

Now is a Perfect Time to Expand Your Scope and Wealth

Now may be the best time in recent history to invest. And once you get a taste for the sweet rewards of investment in foreclosures, you may decide that this is also a prime time to expand your horizons and replicate the procedure beyond our own neighborhood. Wealth can be captured all over the map. All you have to do is grab it and bring it home to your local bank account or property inventory portfolio. The fruit is ripe. Just reach out and harvest it.

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