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When to Invest in Real Estate |
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Is This the Right Time to Invest?By Matthew Martinez
Timing the market is impossible, so I never try to do it. Instead, I merely attempt to buy very good value, regardless of the prevailing conditions. Buying outstanding value is the most important factor in your future success as a real estate entrepreneur, no matter what advice is being offered by the so-called real estate gurus on late-night infomercials. Nevertheless, great fortunes in real estate or any other industry are often made during times of economic distress—in particular, when market corrections, like the current one, dramatically undervalue assets.
Down (Market) CycleBill Gross is the manager of Pimco, the largest bond fund, with nearly a trillion dollars in assets. He was interviewed by the New York Times and commented that, “The current crisis feels different—in both size and significance.” Given that Mr. Gross has lived through a number of economic cycles, his evaluation of this particular one should be noted. By the way, he plans to use some of his firm’s $50 billion in cash to go “bargain shopping” during the next few years. On March 25, 2008, the Wall Street Journal reported, “Lenders describe the current situation as the worst since the Great Depression.” One of the greatest beneficiaries of real estate cycles is Sam Zell, the founder of Equity Group Investments. He is the largest landlord in the country, owning more than 200,000 units from coast to coast. The very shrewd Mr. Zell acquired a massive portfolio of undervalued properties in the market crashes of the early 1970s and late 1980s. Depressed valuations allowed him to purchase real estate assets at a fraction of their true value. He managed to acquire apartment buildings from banks that had inherited properties from landlords who defaulted on their loans. He offered the lending institutions a percentage of the upside in the form of equity in his deals, and in turn the banks (really the Resolution Trust Corporation) provided him with an abundant selection of distressed apartment buildings at steep discounts. Zell built his fortune during the down cycles, so much so that he is known today as the grave dancer because he profited immensely during the bursting of real estate bubbles and it was said that he would dance on the graves of other people’s mistakes.When the market makes a dramatic correction and valuable real estate assets can be purchased at substantial discounts, be prepared to go shopping for the best deals you can find. The odds are in your favor that real estate assets will be selling at discounted prices every 10 to 15 years, and when the real estate market finally does recover (which historically is inevitable—and it seems as though the down cycles are shorter each time), your portfolio will profit from the smart, patient investment decisions you made when everyone else was in panic mode. Unfortunately, most unsuccessful investors subscribe to the herd mentality, buying when everyone else is buying and selling when everyone else seems compelled to sell. There’s not much upside to be gained when you follow the herd! The secret to success in real estate is to buy when everyone else is selling and sell when everyone else wants to buy. Being a contrarian undoubtedly will test your resolve, since you will be doing the exact opposite of what the rest of the market is doing. But stay the course, because real fortunes are made during such times. You must remember that more real estate fortunes are made in down markets than are made during presumably prosperous ones. Don’t believe me? Just ask Sam Zell. BIO:
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