Long Term Real Estate Investing Success

[Tom Goans]

Long Term Real Estate Investing Success

If you are a long-term real estate investor, your investment analysis must be broader.

When investing in real estate, there is a long list of considerations. If you plan to be a long-term real estate investor, your considerations include much more than just the numbers today and in the future. Included should be historical considerations as part of your deliberation, especially the lessons learned.

Approximately every 10 years since the 1960s, there have been ups and downs in the real estate market. There will be a period of appreciation and people making money owning and managing real estate. This has always been followed by a period of decline and market correction.

The real estate market corrections are becoming more radical.

What is alarming, many in the real estate business today have not learned the lessons taught from previous market corrections. This can be a contributing factor the increasing severity of the market swings.

- A person who has owned real estate for at least 30 years has probably experienced three real estate market corrections. Thus, has had the opportunity to learn the lessons.

- A person who has owed and been in the real estate business for 40 years has probably experienced four market corrections.

In the 1970s, the real estate market correction correlated very high interest rates and inflation. Today, people are concerned about 4.5 percent interest rates. In the late 1970s, interest rates climbed to 21 percent and above ... if you could get a loan. It was more than qualifying for a loan, it was whether there was money available.

Could any of this happen again? If you believe there is a remote possibility of something similar, it should be included in your long-term real estate investment planning.

When considering whether to adopt the ideas and recommendations from someone or an author, consider that person’s historical experience. Has that person experienced more than one real estate market correction? Does the author include historical lessons learned? Or, are you only fed enthusiasm and the dream of riches.

Consider the enthusiasm in today’s real estate market. Is the enthusiasm influencing your investments today and the future results? Are you at risk of having a loan balance greater than the property’s value a few years from now?

The week of July 15, 2013, the research firm RealtyTrac issued its mid-year flipping report:

- Investors flipped more than 136,000 single-family homes during the first half of 2013. That is 19% higher than the pace last year and 74% percent higher than in 2011.

- Flippers make housing experts uneasy because they are speculators who can distort normal supply and demand dynamics. They contributed to the housing bubble from 2004 to 2006 by helping generate a frenzy of demand in some areas, one reason prices rose well above fundamental levels. Many flippers lost a bundle when the housing market crashed.

- Flippers can give a jolt to the housing market, but it takes traditional buy and hold homeowners to really bring it back to health.

If you are a long-term investor, expect more future real estate market corrections from a variety of causes. Educated timing, broad analysis, and wise investment practices should contribute to your success.

The author of this observation and opinion is a third generation real estate investor, developer, property manager, and financier with almost 50 years of personal experience.

This is just an opinion based on observation and experience. It is not automatically correct or incorrect. Alternate and opposing opinions are just as correct and encouraged. There are many successful methods, opinions, and analysis in the real estate business.