Real Estate

Real Estate Investment Strategies for Down Markets

Veteran real estate investors know that the money in real estate is made on the purchase of the property, not the sale. Smart investors must be market contrarians in order to make real money. While it may not be necessary to time the bottom of the market perfectly, it always helps to be directionally accurate.

Real Estate Investment Strategies

Several real estate investment strategies fell out of favor shortly after the real estate bust in 2008. Speculating in almost all forms went away completely. Many savvy investors made money placing non-refundable down payments on homes and then flipping those properties to other buyers. Some aggressive builders made money by buying land and building huge suburban communities with no prospects of buyers. These strategies tend to do well in up markets, but don’t work well at all in down markets.

On the other hand, buy and hold investors should be ready to open up the checkbook. Repossessions and short sales represent excellent investment opportunities in down markets because they provide significant downside investment protection. Foreclosures often result in sales that are 15 to 30% below market values. By providing cosmetic repairs, or making a major improvement such as adding a loft conversion or garage, an investor can start out ahead of the game.

Find the Right Real Estate Markets

Veteran investors should be looking to move upmarket as prices decline. The opportunity to move from the suburbs to locations closer to city centres should not be missed.

Investors should be careful when executing moves to new markets. Importantly, an investor should be cautious if he/she has very little direct experience or market knowledge. Just because a market was hot in a certain period does not mean that it will rebound in the next year or two to its former glory.

Find the Right Property

Similar to the above, investors should be looking to upgrade their property. This could come in the form of obtaining more units or simply moving from a C-class building to a B or an A. Keep in mind, this move will require some additional capital, but it may be the best chance investors will get to gain a foothold in high-quality real estate product.

Again, investors should be thoughtful about the move. Going from a 4-unit building to a 12-unit building means three times the management headaches. It will be important to understand the different requirement of managing different property types. A and B-class tenants require a higher level of care than do C-class tenants. Additionally, A and B-class buildings require a higher level of care to remain A/B-class.

A down market is an excellent time to improve the investment portfolio. Do so thoughtfully and aggressively. Down markets should imply investors have more upside than downside. Investors can swing the odds even further in their favor by buying foreclosed properties or buying higher quality, better-located properties at cheaper prices.