Investors: Don’t Ride the Real Estate Market Wave

There is a pervasive misconception about real estate investment: ride the rising market and avoid the sinking one, and you are sure to be a successful investor.  While that is not entirely false, it is certainly misleading.  Yes, you can make money in real estate by timing your investments and sales with the valleys and peaks (respectively) of the market conditions.  With this paradigm, anybody can make money in a rising economy, but the successful investors are the ones who know how to sustain their business during the toughest economic times.

      Instead of waiting for the perfect moment in market-time to strike, the successful investor will scour the deflated market for good deals.  That is the trick: invest in good individual deals, not in a rising market.  You might think, “Even a great deal will yield only a relatively small profit in a bad economy, so why not just wait for a huge profit at the right time?”.  Well, in theory, you would be right.  It is harder to make money when people aren’t spending money on what you have to offer.  And yes, selling at a market peak is the smartest and most lucrative way to profit.  However, most investors have no clue what the market is going to do and when.  They may listen to what the experts tell them, but the experts have demonstrated recently that nobody can really manage all of the parameters well enough to reliably predict such a complex market.

      The point is, clearly, investing at the right time is better than investing at the wrong time.  But putting all your eggs in the market timing basket is incredibly risky, because we don’t have a reliable sense of what will happen ten minutes in the future, let alone ten years.  Instead, search your prospective real estate investments property by property, deal by deal.  Pay attention to the current market conditions (as they will regulate how you make your money), but don’t become stagnant in difficult times or overly excited in prosperous times.  The key is to slowly but surely accumulate good deals and capitalize when you find them.  People will always need homes, even when the community or country as a whole is suffering.  And everyone wants the best deal they can find.  Why not simply find it first and then provide it for them? 

Tell us what you think.  We would love to know. J