Savvy investors take advantage of current market

We frequently tell a person that “now” is the time to invest in real estate. We are all aware of the current foreclosure crisis and depressed real estate market. So why is now the time to invest?

In order to really understand why now is the right time, it’s important to first understand why the real estate plunge happened in the first place. Here are some of the reasons behind the current real estate market downturn:

– Interest rates were very low in 2001 to 2005
– Many renters were able to become owners, borrowing 100 percent of property value
– With so many buyers, prices went up and up and up
– Interest rates went up in 2005 to 2007
– Monthly payments went up (74 percent of recent loans are adjustable)
– With fewer buyers, prices went down – peak was spring 2006
– Many owners owe more than the property is now worth
– They cannot keep up the payments but cannot sell and cannot refinance
– Most lose their homes in foreclosure and return to being renters
– Banks began selling most home loans to secondary market
– Now banks have many bad loans on their books
– Banks have taken back many properties they don’t want

As a result of these combined events, savvy investors see a huge opportunity to buy now while the market is down. Those that truly understand the buy and hold strategy realize that wealth in real estate is obtained from buying low and selling high:

– Buy a Property at a low price in a location with long-term potential
– Hold the property long term (10-30 years)
– Rent the property, earning positive cash flow while it appreciates over time
– Sell high (or hold indefinitely)

Think of every investor you know who became wealthy from real estate. Most did it from buying low and holding that property for 10, 20 or 30 years or longer. Given the trends in history, it is safe to say that if you buy real estate in the path of growth and hold onto it for a period of time, you will prosper.

Savvy investors understand that the key to successful investing in today’s market is to invest first for cash flow and second for appreciation. In other words, buy to cash flow now and be patient while you wait for appreciation. If it takes one year, five years or 20 years, at least you have cash flow in the meantime. Then, when the pendulum swings the other way (which it always does), appreciation will be there for the taking.

So the question is: will you be a savvy investor?

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