ShortSaleWealth.com

Have you ever heard an investor say, “You make money when you buy a property?”  I hear that from real estate people (especially other speakers) all the time, and it’s never really made much sense to me.

The idea is that “You make money when you buy.  You recognize the money when you sell.” 

I think that’s a load of bull…  I know a lot of investors in todays market that thought they were making money when they bought properties a year ago.  A good friend of mine has a sizeable rental portfolio that had very little cash flow, but he was heading forward full speed ahead because the properties “have so much equity!!!”   He figured he couldn’t go wrong because he was buying properties at $.80 and $.85 on the dollar.  He was counting on inflation to grow his wealth.

My friend is hurting right now in a bad way.   He built his entire rental portfolio over the past 3-4 years when property values were at their highest.   Don’t get me wrong here… Right now is, without a doubt, a good time to be a landlord.  There are so many foreclosures going on each and every day that more and more people are needing to rent since they can’t buy.  Renting properties (and buying them really cheap) is easier than it’s been in a long time.  BUT (here comes the BIG butt!)  When investors buy properties with ZERO cash flow (just because they have equity) they end up getting themselves in way over their heads.  

Think about it… tenants eventually move out.  At some point, you’re going to have a vacancy, which means repairs will be needed, payments will still have to be made to your lender without any income to cover those payments.  My friend is coming out of pocket every month for every property he has that sits vacant.  “But Shaun…” he says, “I have all this equity!!”

Guess what?  He may or may not even have the equity that he speaks so highly of!

The fact is… You’d have to be blind to not see that the real estate market has changed in the past 18 months or so.  Property values aren’t what they once were.  Does he still have the equity that he thought he did?

Probably not.  

Even if he does have equity, without cash flow he’ll be out of business like so many others have before him.

I know a number of investors stuck holding inventory because prices have changed, the market has changed.  They’re still doing business the same way they used to.

Times have changed.  In today’s real estate market, things are different than they were even 2 years ago.  I believe we are currently being blessed with one of the most productive, money making opportunities in history.  But we have to start doing deals SMARTER, which means taking on less risk, doing less work and earning bigger rewards. 

So how do you do this?  You start by BUYING RIGHT.   Make sure the numbers work for whatever type of business you’re operating.  If you’re goal is to use short sales to build a rental portfolio, that’s great.  But don’t buy properties at 80% of their value.  You can get them SO MUCH CHEAPER THAN THAT!!!

The truth is, you make money either when you rent or when you sell.  If your goal is to be a landlord and hold properties, you need to make money NOW with cash flow.  If your goal is to sell and recognize your money immediately, you need to make money NOW with equity.

Buying right means making your offers more aggressive.  Buying right means not relying on future values in order to make money.  You and I have no idea what this market is going to do 10 years from now.   We can use statistics to take a pretty good guess, but that’s all it is… a guess.

Our offers are lower than they’ve ever been as of late.  We’re still getting a short sales approved every day.  But if being smart with our numbers means that we get aggressive enough to where not as many of them are going to be approved, so be it.  We’ve been wanting to slow down a little anyway.