Timing the Real Estate Market

I hear investors and would be investors talk all the time about timing the market. Now relatively few of them actually say “timing the market” (because most people know that it’s very challenging to do) but their description of what they’re trying to do is just that. They talk about waiting for the bottom so they can buy at the lowest price possible or they talk about waiting a little longer to get it just a little cheaper. These investors usually describe themselves as “looking” for a good deal or the right time to buy but they are really just suffering from analysis paralysis (spending all their time analyzing deals or the market and never taking action).

Let me tell you why trying to time the market or the thinking that you should way to buy at the bottom is flawed. Let’s just say, for example, that real estate prices are going to drop another 10% and that represents the bottom of the market. We have Investor #1 that is currently investing and doesn’t subscribe to trying to time the market. They will buy good deals now and buy good deals later. Investor #2 is someone that subscribes to waiting for the bottom of the market to buy.

You have investor #1 that bought a house right now at $40,000 (appraisal at $80,000) and got it rented out, he bought another house when prices were 5% lower at $38,000 (appraisal at $76,000), and he bought a third house at the bottom of the market when prices were down 10% for $36,000 (appraisal at $72,000). His net result for buying houses now and buying in the future when the market bottoms out is 3 houses that he paid $114,000 for and are valued at $216,000 (3 times $72,000). That’s $102,000 in equity plus any rental income (~$200/mo. per house) that was received during that time.

You then have investor #2 that beat the odds and was able to time the real estate market perfectly and buy exactly at the bottom of the market. Not only that but even though he hasn’t been buying houses, he had all of the systems, processes, contractors, Realtors, title agents, other professionals, and financing in place at the exact time needed to make their one move, which all goes off without a hitch. They purchase a house at the bottom of the market for $36,000 that appraises for $72,000 giving him $36,000 in equity.

Now, 10 years down the road let’s say the housing prices have increased 20% from the bottom. Who’s ahead? The investor that bought one house at the bottom or the investor that bought before the bottom and at the bottom? Well Investor #1 ends up having 3 houses that he owes $114,000 (not counting paydown) on that are now worth $259,200 giving him $145,200 in equity. Investor #2 has 1 house that he owes $36,000 that is now worth $86,400 giving him $50,400 in equity.

That leaves Investor #1 ahead by over $94,000 in equity! Not even mentioning all of the additional rental income (Close to 3 times the amount of cash flow Investor #2 received) and three times the write-offs that they will receive.

I know, I can hear you talking already. Prices are going to increase by 20% in ten years from the bottom of the market? Well, if values only increase 10% over that 10 year time frame, Investor #1 is ahead by $80,400 in equity. If prices don’t increase at all from the bottom over the next 10 years, Investor #1 is still ahead by $66,000 in equity! Plus, as mentioned above, Investor #1 will get almost three times more write offs and cash flow over that same time period. Who’s ahead now?

Whether you followed the numbers or cared to read through the analysis doesn’t really matter. The main point is that the investor that takes action now on conservative investments is always going to have the jump on the investor that tries to time the market and buy at the bottom. The investor that gains experience and assets now and in the future will have a much greater advantage by having the experience, processes, and contacts to take advantage of the market. The investor that is waiting for the bottom of the market will rarely be able to pull the trigger when they think the time is right.

Take massive amounts of focused action by working with other investors that are doing what you want to do and stop worrying about timing the market!

Be a Renegade,
Jared Pomranky
Renegade Detroit Investors

Metro-Detroit Real Estate Group
Metro-Detroit Real Estate Blog
Detroit Real Estate Investments
Detroit Cash Flow PropertiesFree Report

[tags]real estate,market,timing,action,cash flow,investments[/tags]

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Time for Change… Renegade Style!

Yesterday we inaugurated the first Black American as President of the United States. Considering that 60 years ago Obama would have to drink out of a different water fountain than me, I find this historic event inspiring and it gives me hope for the future of America. Regardless of your political beliefs, President Obama’s inauguration speech calling for a new era of change was an eye opener. While I’m far from the world’s biggest Obama supporter (I’m a Ron Paul supporter), I found much of the President’s speech exciting and motivating at this particular juncture in our history.

As Americans we have one foot in the industrial age and one in the information age and neither foot knows what the other is doing! It seems at times that America is confused about what must be done moving forward.

“That we are in the midst of crisis is now well understood.”

While I agree that we are in a crisis, I believe that we have been in a financial crisis for a long time. The crisis I’m blogging about is the personal retirement crisis. Our parents and grandparents have prepared us for the world with tools that are no longer useful and practical. Without over simplifying the issue, we were raised to go to college and get a good job with benefits. While it is obvious to most now that a college education and a job just won’t cut it, we are still confused as a nation and people.

“But our time of standing pat, or protecting narrow interests and putting off unpleasant decisions- that time has surely past. Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.”

The time of the defined benefit plan and employer sponsored retirement is OVER. The writing was on the wall in 1963 when the Studebaker automobile company terminated its employee pension program. Since then ERISA was passed in 1974 to enforce and regulate to some degree employee pension programs. As Americans we have seen this fail as well with ENRON, Adelphia Communications, World Com, TYCO, and Quest to mention just a few! The loss to defined benefit and defined contributions plans, YOUR RETIREMENT, was in the BILLIONS! Of course that pales in comparison to the Trillions lost in the recent mortgage crisis. This was real money from your retirement funds.

Now is the time to remake your retirement plan and take control over your future. While the switch from having someone else manage your retirement to you managing it can be a challenge, it is not as difficult as you think. If you don’t already have one, you need to start or convert your retirement into a Self Directed Roth IRA. I recommend Equity Trust Company because of their customer service and how easy they make every transaction for the new and seasoned investor. With a Self Directed Roth IRA you can invest your money in anything you want and all of your future gains and profit are tax free!

This does mean that you will have to analyze that stock, real estate deal, IPO offering, bonds, businesses, CDS and other investment opportunities but isn’t that the entire point? The evidence has shown that when your retirement is left up to the government or corporations, you lose.

What it means to be a Renegade Detroit Investor is personal responsibility for our investments and an aversion to mainstream thoughts and antiquated advice from so called financial advisers.

“What the cynics fail to understand is that the ground has shifted beneath them…. For the world has changed, and we must change with it.”

This is the Renegade Detroit Investors battle cry! You can whine and complain all you want but that is like trying to swim upstream. You cannot fight the change. The change is already here… and what are you going to do about it? Are you going to lie down and let corporate America swindle your retirement or submit to bigger government taxes in the allusion that social security will cover your needs?

“What is required of us now is a new era of responsibility – a recognition, on the part of every American, that we have duties to ourselves….”

You have a responsibility to yourself, your country, and ultimately to your children and grandchildren to embrace the change and prepare future generations to be financially independent of government and corporations.

“This is the price and the promise of citizenship.”

Make your life uncomfortable,
Jeremy Burgess
The Detroit Market Expert
Metro-Detroit Real Estate Business Group
Metro-Detroit Real Estate Blog
Detroit Real Estate
Detroit Cash Flow Properties – Free Report

[tags]obama, retirement, pension, ira, roth, investments[/tags]

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Michigan Investment Opportunities in 2009

Here we are in January of 2009 in Michigan.  The auto industry, economy, and the real estate market are in turmoil, which is what makes 2009 the year you MUST take action in real estate.  Yes, you’re reading that correctly.  There is an unprecedented opportunity in real estate right now that we will not see in our lifetimes because we will not see the <insert cliche term “Perfect Storm”> of events that have occurred to get us to where we are right now.  Housing prices are lower than than they have been in decades (not even counting inflation) yet rental rates remain stable.

What happens when housing prices decrease while rental rates stay the same?  Let’s see, less invested capital for the same return.  That means your cash on cash return and your overall Return on Investment (ROI) is higher.

Why isn’t everyone rushing in to buy property in Southeast Michigan  right now, you may ask?  Well, there are plenty of buyers in the market right now buying investment properties.  My company, Urban Detroit Wholesalers, has sold properties to investors in many different states and have even garnered attention from overseas investors.  It seems to be fear and uncertainty that keeps many metro-Detroiters from moving ahead with investing.

All it takes is looking at the price of houses, the ability to rent, and the cash flow that you’ll receive. Even the most conservative investors can see that there are literally thousands of excellent deals to be had in Metro-Detroit. This market excites me and it makes me want to get others excited about the opportunities! Don’t be the one kicking yourself because you didn’t get involved.

I want YOU to take action. Yes, YOU. I don’t care if your investing in Detroit, Eastpointe, Redford, Saint Clair Shores, Grosse Pointe, Royal Oak, Oak Park, Southfield, Troy, Downriver or anywhere else in Michigan, you need to make a move.

If you don’t know where to start or you need excellent contacts, you need to make it a point to attend the next Renegade Detroit Investors Meeting.

Be a renegade,
Jared Pomranky
Metro-Detroit Real Estate & Entrepreneur Group
Metro-Detroit Real Estate Blog

[tags]metro-detroit, real estate, michigan, investments, opportunities[/tags]

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