Rob Swanson’s Real Estate Investing Blog

It seems that more and more, people are asking me what I think the state of the real estate market is and what investor’s need to do to remain secure and succeed. I’ll start with what I’ve watched happen over the past 18 months and then how it is affecting our real estate investment business.

In 2005, record market appreciation was rampant, investors and speculators alike were making money. Financing was easy and the horizon looked bright. 2006 brought new challenges as previously ‘hot’ pockets began to cool down, the balance began to level and demand slowed rapidly in certain cities and regions. At this same time however, other areas of the country began to realize record breaking appreciation. This year, 2007 has emerged as the tipping point. Liquidity in the markets has changed, lending is more stringent and many investors find themselves wondering about the next move. In essence, real estate markets across the country have moved from being Momentum markets (many rampant with speculators) to being Value markets.

Let me share the difference. A Momentum market offers investors rapid price appreciation resulting from either speculative buying or from truly growing demand combined with low supply. A Value market may or may not experience rapid price appreciation, but offers investors plenty of discount inventory. In a Momentum market, real estate investors build equity rapidly as values increase. In a Value market, real estate investors buy equity by purchasing significantly below market properties.

Competition among real estate investors in the few remaining Momentum markets has risen creating fewer deals and many bidding wars. As a result, we are currently focusing the majority of our acquisitions in Value market opportunities buying significantly below market value. In either case, the standard real estate rule of thumb applies: You make your money when you buy. I believe that we will continue to see changes in the real estate climate over the next several years but I also believe that this simply creates opportunity for the in-tune, in-touch and educated investor.

Cash is king but financing is still available. Don’t be fooled into putting all of your eggs in one basket when it comes to your exit strategy. If you plan to buy, fix and sell – be prepared to hold and become the bank. Learn creative marketing, sales and leasing strategies. Plan for these market realities going in and you’ll be just fine. Buy right and manage your investment well and you will continue to realize profits.