That is the big question these days. Everyone has an opinion and most have an agenda.



I was reading the “Costco Connection" business member magazine the other day

(shameless plug for an ex-employer). They have a regularly published article by the personal

finance guru Suze Orman. One of the sub-headlines shouted “Get Out of the Real Estate

Market!" She was intimating that there was a crash coming much to the extent that the

Tech Bubble burst earlier this decade. I have much respect for her as an expert in personal

finance but I can tell just from the headline that she doesn’t understand real estate investing

that well.

If you watch TV and read the financial press you can’t help but take notice of the high

levels of real estate prices and the high percentage of purchases by investors or people

buying a second home. There are statistics that have been thrown around by the press,

that around 25 appreciation rate rather than the stagnant to declining appreciation they have

experienced for the last few years. Or you could be in a hot market like Phoenix or Las Vegas

which has seen appreciation skyrocket to 30 annually. All of these

areas make up the national average and neither has anything to do with the other.

The Term “Bubble" paints a picture that the price of housing will burst at some point.

“Bull Puckey!" Land is in limited supply throughout the United States. As such, it is subject to

the same laws of supply and demand that the rest of the economy is: the lower the supply,

the higher the demand, the greater the price. The cost of a house in the Seattle area where

you have physical as well as government-imposed restrictions on growth will have higher

house prices than somewhere in the middle of Kansas. The point is real estate will never be

worth nothing. The house may fall down but the land will be worth something. Yes

appreciation rates may fall, may even depreciate in a few areas, but it will always have

value.

“When Will the Housing Bubble Burst?"

Without that catchy headline they won’t sell as many papers nor will they get as many

viewers now will they?

When you are an investor you are not necessarily doing what the media terms as “Flips."

There are many ways to invest in real estate such as: private lending,

REITS (real estate investment trusts), landlording, buying discounted notes, foreclosures,

pre-foreclosures, seller-financing as well as what is commonly called “flips" or

“Quick Turn Real Estate" as popularized by one well known Guru. This last tactic is what seems

to be drawing the most attention. It has been popularized by many new TV shows such as

“Property Ladder," “Flip That House," and my personal favorite “Flip This House."

To many novices they look at these shows which glamorize the business and the

renovations. They look at the profit as shown on these programs and say to themselves

“Hey, if these idiots can do that, then so can I." Well, for most of the episodes of the first two

programs I would have to agree the investors were uneducated and down right lucky to be in

a hot market. I can’t say I watched all of the episodes, but thank God for TIVO. What these

programs all have in common is showing the renovation process. They show the perils and

pitfalls pretty well, but trust me, the 30 or 60 minute episodes cannot show the negotiations

nor the financial implications involved. And trust me, you can ask any active investor who

does rehabs and they would all be thankful if it only lasted for 30 or 60 minutes. I know that

my stomach would. Getting back to the point. There is much more to investing than just

“Flipping" properties.

As a creative investor we do not pay retail nor do we usually have all the costs

associated on the retail side. You are dealing with motivated sellers rather than the typical

“Want-to Sell" homeowners, those who sell through the conventional process. This fact is lost

on some of the financial gurus and media pundits. If I had to guess I would have to say that

creative investors only make up less than 10% of real estate investors in the United States.

But I would have to say that a goodly portion of the remainder are very experienced and

astute investors, who both have the money and experience to whether any changes in the

market. They are going to invest in the market at the proper time and in the locations that

warrant investment

I am not sitting here telling you to buy any house that comes your way and not to pay

attention to the market conditions. What I am saying is to not worry about the national

verage and instead focus on the happenings and the signs of your local market. Spend your

time and energy learning what you need to look for and how to buy houses at a discount.

There are many who dove out of the real estate market in California in the 1980’s fearing

the potential crash. And, lo and behold, the market did decline briefly. These sellers were

fanning their sweaty faces, grateful they had “gotten out" when they did.

Unfortunately for them, the market recovered. The properties they had sold feverously in

the $400,000 range zoomed steadily up, values today ranging around $1.5 to $2.0M.

I know some of them. They now wish they had bought more and sold less. Don’t let the

mainstream media scare you out of something you know you should do. Instead, invest in

your education, so you can invest smarter, and not look back with regret ten years down the

road.

Rei-Success