Perfect Time to Invest

December 21, 2011 in Real Estate


With the economy seemingly getting weaker by the day, housing prices continuing to fall, and the stock market experiencing unprecedented levels of volatility, making additional investments is the last thing on many people’s minds.  Yet if history is any indication that is exactly what investors should be considering.  That is, of course, if they hope to take advantage of the elevated investment returns that have followed previous recessions.

In particular, the residential real estate market currently offers tremendous investment opportunities. Average home prices are currently lower than they have been in 15 years.  Investors can now acquire properties at extraordinary discounts that will generate significant annual income while carrying potential price appreciation of more than 200% once the real estate market stabilizes.  Despite the common doom and gloom media coverage, investors who do their own research and analysis of  real estate will discover undervalued opportunities for investment.


While the real estate sales market continues to suffer from the combined effects of tightened credit standards, lack of available capital and the ongoing rash of foreclosures, the strengthening of the rental market,  has gone largely unnoticed.

The current strength of the rental market and the historical stability of rental prices have created attractive opportunities for long-term investors.  If the first, second, and third rules of real estate are LOCATION, LOCATION, LOCATION than the fourth, fifth, and sixth, most certainly must be CASHFLOW, CASHFLOW, CASHFLOW.  Today there is no doubt that the current real estate market offers extraordinary cashflow generation opportunities.

In addition, despite the current problems facing the banking industry, real estate loans remain available for individuals with reasonable credit and stable income.  Thus, investors have the opportunity to further enhance their return by using borrowed money to leverage their investment and potentially quadruple their annual cash on cash return to 100% or more.


Beyond the strong income potential, the current dynamics of the housing market point to signs of dramatic future price appreciation.  First, current price levels are 70% lower than the average area housing prices over the last 15 years.  It is reasonable to expect that once banks are able to unload their portfolio of foreclosed properties over the next few years, prices will likely begin to revert back to that 15 year average.  This would point to appreciation of more than 300%.

While no one can be sure exactly when the real estate market will normalize, it seems reasonable to expect significant price appreciation for properties located in desirable neighborhoods given the above factors.  Stabilization will likely begin to occur as the supply of foreclosed properties on the market declines.  Appreciation should then accelerate further as demand from former homeowners increases as they rebuild their credit and begin to look to purchase homes they are currently renting.


Warren Buffett, one of the most successful and well-known value investors of our time, recently wrote that, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.” (New York Times: Buy American. I Am., October 17, 2008)

This statement represents the basic concept of any successful investment strategy, Buy Low and Sell High.  And while the strategy is simple, executing it can be far more difficult, particularly in a market environment like the volatile, fear-filled one in which investors currently must operate.  Yet, the widespread fear in the current environment offers an opportunity for investors to identify and acquire long-term investments at extraordinary discounts.  But rather than view today as a time to be greedy, I suggest approaching the current marketplace with cautious, conservative, rational analysis.  With this approach it is clear that there is significant value in real estate for long-term investors.

Value investors like Buffett, earned considerable wealth with the fundamental belief that over time the market will value assets at reasonable prices.  And today, despite the short-term problems facing the economy and the stock market, there is no reason to believe that the market will not in the long-run stabilize, as it always has, at an appropriate level.

In the coming weeks, I will continue to provide further information and analysis on the current real estate market along with various techniques that our company utilizes to successfully and conservatively analyze real estate investment opportunities.  If you would like further information on available investment opportunities or would like to discuss a potential real estate investment , feel free to contact us for further information.

(800) 630-1257