Okay, Okay, I Get it Already - Surviving a Slowing Real Estate Market

The real estate market, as a whole, is slowing.

It has grown quite entertaining to watch financial reporters hyperventilating on-air as they announce the next proof positive of what we already know.

Of course the real estate market is slowing. All markets slow!

They HAVE to at some point. After all, it was a great run.

I get asked a lot lately something like "what are you doing about the slowdown?" Folks want to know what I’m doing, thinking that what I’m doing might have some relevance to them. It might, and it might not.

Here is where I differ with some real estate writers. Some say something like, "it’s always a good time to invest in real estate." Hogwash! There are areas and times where it is smart to sit on your hands for buying OR selling property.

You HAVE to understand what has been happening over the last year or so, and I’m going to tell you what that is. It’s not as complicated as you might think. It’s simply...

CHANGE

Yep, that’s what you need to know. Change has occurred in most markets and change will likely continue to occur. Change has always been occurring, but now it matters!

Think if it this way...

Imagine the tide as it comes in and out of an area...let’s say an inlet. When a big, high tide starts moving out of the inlet, it’s a pretty strong current, and everything gets sucked along in the current, like it or not. If you are floating in that water, you’re GOING to go where is flows.

On the other hand, when the tide at it’s peak, there is no more water flowing out of the inlet, in fact, the water slows or stops flowing. The overriding current that moves everything is temporarily gone.

We are at the point where there is no longer a strong current guiding the overall real estate market. The nearly universal trend of skyrocketing real estate prices isn’t there anymore. Local markets will be going in all directions (up, down and sideways) without the influence of an overriding current.

So what does that mean to the rehab real estate investor?
Here’s the bottom line. Now is the time to BE THE INVESTOR, and investigate your own, local market and make some tough decisions. You may find that it really is a good time to scoop up a few properties. Then again, you might find that it’s time to pause for the cause. It’s likely to differ city-to-city and perhaps neighborhood to neighborhood.

To make that determination, you have to focus on your market...the one in the neighborhoods you want to own property, AND you need to find out the behavior of the folks who would buy or rent your properties. Your focus has to narrow in.

Armed with the right information, you can make the right decision about what your next move should be. Isn’t that what being an investor is all about?

Here are some morsels of information you should be looking into for your area:
• What’s the rental market doing? How many units are on the market compared to last year? What’s the demand for rentals? Increasing? Decreasing? In my area, there is currently a glut of rental units on the market. I was puzzled at first about that, and then I realized that what happened was that when interest rates started going up, everybody who could buy...did! More empty rental units means lower rents as competition for tenants heats up. What’s happening in your area? Ask a property manager about how the number of rentals for this month compares to the same month last year? Bounce this question off several property managers and see what kinds of answers you get. Even if you are a rehab-and-retail investor, you need to know this.
• Has the number of homes sold really decreased? Notice that I didn’t ask how many properties are on the market. You want to know if the overall numbers of properties changing hands in your area, in your price range, has changed significantly. This will tell you if the market size has decreased. A Realtor friend can give you some idea, and a quality title company contact will also guide you with this.

The number of houses on the market may be misleading because I feel there are a fair amount of folks are sensing that the run-up in property values is coming to a close, so they are putting their house on the market NOW to get the most they can get for it. Hey, I can understand buy-low-sell-high! Also, it appears that more and more folks are not using Realtors, opting to sell their houses themselves using a low-cost option. The number of houses listed on the MLS (Multiple List Service) might not be the accurate gauge that it once was.
• Are prices falling in your price range? In other words, how many bargains are showing up? Nationwide, the trend is that great bargains are not showing up all over just yet, but as the economy and energy prices start to squeeze consumers, more foreclosures will happen and more bargains will starting showing up. This is a very regional thing. For instance, if a major employer in your area closes up shop, your area may see many more foreclosures and distressed property than the next state or town.

Armed with some idea of the rental and sales market in your target areas, the answer whether to stomp on the accelerator or put it in park becomes...

...it depends.

A rehabber who rents or leases in an area where rental demand is decreasing should probably cool their jets. Keep taking the pulse of the market. I mentioned that there are a lot of rentals available in my area currently. I also know that rental demand is steady, and there are a large number of apartment-to-condo projects going on, which will reduce the number of units on the market in time. It will turn around soon enough.

If your area’s rental demand is strong and the number of available units is steady, you’re probably okay with continuing to acquire property. Know your area.

If you rehab-and-retail, you NEED to know if the number of buyers (market size) is shrinking because it will mean:
• your houses may take longer to sell
• you might have to do extra things to your property to make it stand out in the market
• you may need to get creative in marketing your properties

You may also live in an area where rising interest rates has not yet slowed the buying activity down. Ride the wave, but be aware that it may crest at any time.

You may find that very little has changed in your target market. Traditionally, the market most rehabbers work in (entry level market) are less effected by a slowing economy and interest rates than higher end properties. Know your market.

If you are rehabbing million dollar properties, then I suspect your market is definitely slowing. Higher interest rates hit the high end market particularly hard.

Finally, a note on change. When economies change from hot to cold and back again, fortunes change hands. So, being aware and awake to opportunity has never been more important than now. You are going to have to talk about the market with more people, and investigate things a little harder these days, but that’s the price of being the real estate investor. You can do it. Change means opportunity.

Since change is GOING to happen, then decide how to deal with it.

Begin with the end in mind.
• decide what conditions will lead you to decide that it’s time to wait, or to start, buying more property...list them on paper!
• know what conditions will lead you to start selling off property
• while you’re at it, make a list of exactly what your indicators will be, and where to find the information you need.

There is NO ONE ANSWER to how I or anyone should handle a real estate slowdown. But, I can tell you with complete confidence that change is in the air, and local markets will differ town-to-town more so now than in the past. So, buck up! Start digging and become rich in information gold. Knowledge and information will always precede real gold...money!

About the author:
Bruce W. Ford published the "Nothing Held Back" newsletter as a free service of Rehab-Real-Estate.com. Get his important Special Report entitled "12 Things Real Estate Investment Gurus Won't Tell You" at http://www.Rehab-Real-Estate.com.