But What About The Market? ~ By Chris Anderson, Ph.D.

April 27, 2006

Maybe I have a weird since of humor but I have really been amused at some of the absurd real estate market comments showing up in the media and via my email.  In one day, I saw the two extremes below which I have paraphrased to avoid copyright issues.

From Financial Press

Quite frankly, I believe the real estate market is dead.  Anybody who invests in real estate going forward will likely have a difficult time in this interest rate environment.  The prudent investor will switch a majority of their assets over to the stock market which has been doing quite well lately...

From Real Estate Person

The real estate market in the area has simply been taking a breather.  With our emerald waters and sugar white beaches, EVERYBODY knows the prices are going to be going back up, probably starting this summer.  The best thing is that since things have cooled off, you can really get a good pick of a beach unit since there are several on the market.  Also, the really nice thing is that people always know that real estate goes up so the risk is very low...

ARGH!!!   What an extremely naïve view from both sides.  I would be willing to bet neither one of these individuals has ever owned investment real estate.  Unfortunately, many people will adopt one of the two above views and then base their investment decisions accordingly.

In my opinion, thinking in extremes like the above is counterproductive and comes from a very commonly held belief:

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Common Belief :  Money is made in markets only when they are rising sharply.

The Truth:  Money is made in rising, flat, and declining market conditions by savvy investors and traders.  Their approach changes depending on the market condition but they never skip a beat.

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As an example, most people believe the stock market was pretty bad between 2000 and 2004.  For the average investor, that is true.  However, I know people who did extremely well during all aspects of this period from when the market was declining sharply to the long, extended period when prices essentially stayed flat.  How?  They adjusted their approach.

Since I also still work (to a limited degree) with stock/future traders from the Van Tharp Institute, I think it might be very helpful for the real estate crowd to get an idea of how investors/traders in both the stock market, and the real estate market, make profits in any market condition.  If you can adopt that type of logic, then it is a simple matter of deciding which approach to apply.   Shown in the table below is 5 different market conditions and how "Stock Traders" and "Real Estate Traders" might profit.

Market Type	Stock Trading Approach	Real Estate Approach
Sharply Rising	Throw a dart and pick a stock.  Its all going up; Find the strongest sector and buy Great money can be made by trading rapidly	Throw a dart and buy almost anything; Find the most "in demand" type and buy to hold or flip rapidly. Great money can be made by flipping properties rapidly
Slowly Rising	Find the strongest sector and hold for extended periods; Look for undervalued stocks	Find the most in demand property and rent out and hold for 1-5 Yrs; Look for undervalued properties
Flat	All profits made by buying "right".  Only buy when value is good.	All profits made by "buying right"  Only buy when value is good.
Slowing Declining	Aggressive search for value and only buying when extreme value is present	Aggressive search for motivated sellers offering great prices or attractive terms like owner financing.
Sharply Declining	Short stock (more advanced); Wait for panic selling and buy over reactions.	Short Real Estate related stocks; Wait for panic selling and buy over reactions

A common question then is when do you invest in real estate?  My thinking is that you invest anytime that "the deal makes sense", regardless of market condition.

The next question would be what kind of real estate market are we in?  The funny thing about the real estate markets is that they greatly vary by

1) Location; and

2) Type Of Real Estate Product (Land, condo, SFR, commercial, etc).

Clearly, over the last few years, we have experienced a SHARPLY RISING market in most aspects of residential real estate.  Housing prices have doubled or tripled in some areas, resort condos have gone through the roof, land prices have exploded, etc.  Simply put, throw a dart during that time and you made great money.

All explosive, SHARPLY RISING markets have limited life cycles and personally, I believe this one has run its course in most markets.  What this will do, in my opinion, is create multiple market types; each of which can be profitable for you.  In some real estate products, like affordable housing, this run up has created a true demand that only gets worse with time in areas like Florida where the population is expected to explode.  It is our thinking that most of the affordable housing in such areas will experience long term, STEADILY RISING markets.

In our opinion, the explosive run up will create some opportunities in declining markets.  In some areas of the country, in some types of real estate, it is my belief that too many people jumped in too fast, with too little money behind them.  Like the NASDAQ run up, they got caught up in the "everybody is making money" process and some have invested in some products that may cause them difficulty.  At the right point, in some markets, I believe that we will see some panic selling in higher end real estate.  For savvy investors, this simply creates more opportunity at the right time. The last point I will make on this topic is take a look at the real estate investment approach for each market type.  Realize that in any market condition, the best investments occur by getting the seller (or developer) to doing something that they don't want to do.  In exploding markets, the seller has the upper hand so the whole trick is getting a fair price.  In flat or declining markets, the seller is going to have to sell below market value to make this good for you.  So why will the seller do that?  If you can immediately solve their need for a sale or money that they can't get some other way, then they will be inclined to work with you.  At GetPreConstructionDeals.com, we believe that individual investors can do well, in any market condition, by simply participating as part of a large buying group.  Our belief in this is so strong that we have recently formed a relationship with another group that over doubles our investor base to 40,000+.  As we go forward, we will greatly enhance our purchasing power thus putting our investors in a position to profit in any market. About The Author Dr. Chris Anderson is the founder of one of the largest preconstruction groups on the internet today and is referenced in many venues including the New York Times and USA Today. Get access to wholesale property investments today. Note:  This article may be copied for use on other websites under the following conditions: It is not altered in any way. The about the author is included The http://www.GetPreConstructionDeals.com hyperlink remains intact.