Real Estate Investment in a Recession

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					                                                      to emerge like a small swarm of locusts to
Real Estate                                           steadily reap houses for sale like crop. In fact,
                                                      their buying presence has been so prominent
Investment in a                                       that national housing inventories of homes for
                                                      sale have significantly decreased during 2008s
Recession                                             final quarter, a reliable sign that demand is
                                                      beginning to once again catch up with supply.
Have you ever noticed how buyers flock to
purchase property in droves when real estate          But how do these brave souls know precisely
prices are at their peak, yet buyers are relatively   when they are buying at the bottom of the
scarce when prices are most affordable?               market? Do they throw caution to the wind and
Notwithstanding the fact that this occurrence         simply force themselves to muster the courage
defies the generally accepted investment              to purchase property despite the fact that
strategy to buy low and sell high, one cant help      values may continue to decline in the future?
but wonder why attending social gatherings            The simple answer is that savvy real estate
during the real estate boom years of 2005 and         investors do not purchase property with the
2006 would inevitably lead to engaging in a           expectation of immediate appreciation in value.
conversation about someones real estate               Rather, investment real estate should be
investment and the promise of future profits to       purchased based on the propertys potential for
be derived from the venture. Its not all that         positive cash-flow. Positive cash-flow occurs
surprising that many of those recently boasting       when a propertys rental income exceeds the
about their real estate exploits have softened        owners costs to maintain the property.
their tone while seasoned investors, dormant          Consequently, when a property provides a
for the past six or seven years, have begun to        positive cash-flow, a decline in real estate prices
once again start purchasing lucrative                 is of little concern since the owner can simply
investment property. Despite news about the           enjoy the income his property generates until
recent real estate and financial industry             the market revives and the property can be sold
tribulations that the public is seemingly             for further profit.
bombarded with every day, the last few months
of 2008 provided a relatively quiet, yet              During the real estate boom years our nation
dramatic, surge in real estate sales.                 became blindly infatuated with the appreciation
                                                      of real estate prices, which represents the
The National Association of REALTORS (NAR)            amount of value that a property will gain over
has reported that residential home sales have         time. So called house flippers brazenly
increased by an astonishing 115% when the last        leveraged money to buy numerous properties
quarter of 2007 is compared against the same          with the expectation that their values would
period for 2008. Have the experienced investors       increase, thus enabling them to sell the
purchasing all of this property been ignorant to      properties for handsome profits in a short
the steady stream of media reports warning of         period of time. These novice real estate quasi-
declines in real estate values? The answer is no,     moguls, often addicted to HGTV and other
they have simply been waiting for the right time      television shows created to promote the
                                                      industry like Flipping Out and Flip This House,
regularly failed to consider property cash-flows
prior to making their purchases. Why bother
when real estate values will always continue to
appreciate, thereby alleviating the need to hold
properties for long? After the housing bubble
burst, many of these speculators realized that
they shouldnt have built their investment
houses out of sticks, and social gatherings
became pleasant once again.

Seasoned investors build their investments out
of bricks by carefully and conservatively
analyzing a propertys cash flow potential prior
to purchasing. The primary reason that these
investors have been sitting on the sidelines for
many years is that most real estate prices have
been far too high to generate positive cash-
flows and a reasonable return on investment. It
hasnt been until recently that both residential
and multi-family housing prices have retreated
to levels where rental income will cover
monthly mortgage payments and other
operating costs. Further, with the construction
of new housing and apartments decreasing to a
virtual halt, a still rapidly growing local
population, and many families displaced from
foreclosed properties, an investment propertys
owner is free to choose from a tenant base that
is now stronger than ever. One can clearly see
why a decline in real estate sales prices typically
accompanies an increase in monthly rental
prices.

No matter what the year 2009 holds in store for
real estate investing, it is essential to remember
that investing in real estate should always be
considered over a long term. Although the
opportunity for a quick flip may present itself,
the distinguishing benefit to sound real estate
investments is their ability to provide income no
matter what the economy throws your way.