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