How to invest in a declining real estate market

Many people talk about timing the real estate market. Most likely they are referring to the best times to buy investment property and get the best deal.

I used to feel the same way, but what I have found is that there are always worthy investments in any market, if you simply adapt your investment strategy.

One of my favorite quotes actually comes from a movie and the character played by Danny DeVito who says it best in the movie Other People’s Money: “The game never changes, only the rules change.”

 

Changing times means changing rules

If timing the market means you buy for the best price in a buyer’s market does this mean you as an investor simply takes time off until the next buyers’ market arrives? Of course not. These markets positions take 6, 8 and even 10 years to come around again.

To win in the game of investing you simply shift with the times. When markets become balanced or shift to sellers’ market what do you do if you still want to invest.

 

Investing in changing markets.

Investing in a changing market is what seasoned investors actually enjoy doing/ Why? Because there is much less competition. They know that investors pop out of the woodwork when times are easy and there are great investments on every street in the city. But as markets change you have to be more diligent and this is where many investors drop off. Most investors are not familiar with the changing rules, they only understand one rule. “Buy low and sell high”, when they cannot do this in their backyard they often stop investing altogether.

 

Investing in declining markets

Indeed, this is where many investors stop investing but there are still investments to be had. The first thing seasoned investors do is what we all knew for hundreds of years. They follow the “location” that today makes the best sense to invest in. There are always sellers’ markets and Buyers markets and transitioning markets happening somewhere in the country.

 

You see there is not really such thing as a national real estate market, or even a state real estate market as far as that goes. Markets go up and down based on many factors; job growth, job diversity, population growth, home affordability, local municipality’s future growth plans with incentives to attract jobs and so on and so on.

So, if you want to buy low and sell high you simply buy in buyer’s markets (even if this means investing in locations outside your back yard) and sell when the markets shift into sellers markets.

 

Investing in sellers Markets

I know I may have lost some of you with the last comment. Yes, seasoned investors invest in buyers’ markets all over the country. If you are one of the people who thought. “Oh no, I am not comfortable investing in a market that I cannot go visit my property and keep an eye on it”


then you simply may want to remember that quote from Danny DeVito: “The game does not change, only the rules change.”

If you want to stay in the same market and invest and can no longer buy low because a market is shifting, you simply change what you invest in or how you structure the investments.

 

Invest in value plays: Buying distressed properties in buyers markets has dozens of buyers for each property. Buying property and converting them into properties that represent its highest and best use can be very lucrative as few people play in this space. For example, my personal favorite is buying 2-bedroom homes with lots of square feet and adding a bedroom. You can often add a wall or some minor reconfiguring of space and increase the value of the property and increase the amount you can charge for rent quickly and cost efficiently. As most people are out looking for 3 bedroom homes you will find less co petition looking for 2 bedroom homes.

 

Buy apartment buildings that have been poorly managed. The value of apartment buildings is derived from the income the property brings in. So you can buy a C class property in a B class neighborhood or a neighborhood that is in the midst of the path of progress and increase the value drastically. Again, there is not a lot less competition doing these types of investing.

 

The list goes on and on. I believe you get the understanding. There is so much profit to be made by solving problems. In changing markets, you do not want to be like everyone else. Do your diligence, think outside the box, join investor network forums and invest in property that have few buyers for it, find a way to solve the problem for that property and receive the rewards of converting that property to its highest and best use.

 

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