When youre going shopping for real estate in the middle of an economic recession you can pretty much guarantee that whatever you purchase, youre going to be able to make a profit. There are certain parts of the country that take a little longer to be affected when a recession strikes, but sooner or later every place is going to start to feel the pinch-which means you can basically stick a pin in the map when youre trying to decide where you want to make your investment.
Of course, just because you can make a profit just about anywhere doesnt mean that you shouldnt take measures to maximize that profit. If you were sitting in the middle of a giant room of sweets that were yours for the taking absolutely free, would you go for the Godiva chocolate or the M&Ms? When you have the choice between a property that youre going to make a minimal investment on and a property that you will make an incredible profit on when the economy starts rising up again, go for the property thats going to bring you the best return!
Where are you going to find the best deals? Urban properties and homes in the suburbs of these urban areas are always more highly in demand than those that require a lengthy commute to get to lifes essentials. Homes in the suburbs of Washington, D.C. are going to sell for a greater profit (and much more quickly) than a home in a small town like Rexville, NY. (Dont worry if youve never heard of it-most of the rest of the world hasnt either!)
When you first begin investing its usually recommended that you pick a property close to home, where you know the neighborhood, the general ambiance and, most importantly, what sells! If you choose to do your own rehab this is particularly important, as there are many areas in the country that are particularly prized for their historical value and which will bring a much lower return on your investment if theyve been stripped and decked out in the latest style than if theyd been carefully restored. An experienced rehabber will know this. A beginning investor will not.
Other factors you may want to take into consideration before closing the deal are:
The quality of the neighborhood. Unfortunately, all urban areas have their slums. An area with a high crime rate, a wide-spread amount of graffiti and property damage, regular drug activity and daily visits from the police is going to be much less desirable to a prospective buyer than a home situation in a nicer part of town, where they can safely allow their children to step out the front door without having to worry that they wont come home.
The condition of the house. There have been many, many investors that have plunged right in to the world of real estate and rehabilitation and bought a handymans special only to discover that by the time they got done paying for the repairs to the property the profit margin was considerably less than what they were hoping for-and what they would have made investing in a property that needed a little less work.
Before you commit to buying a property, take the time to have the home inspected carefully. Certain factors, such as a leaky roof, faulty foundation, termites and extensive mold, are going to be both difficult and expensive to fix. Unless you can quite literally get the property for a song, justifying the amount of time and expense youre going to put into the restoration project, it may be best to allow that one to pass you by.
What you plan to do with it afterwards. This is probably the biggest factor when it comes to real estate investing, because what you plan to do with the property after you purchase it makes all the difference when youre determining what types of properties are suitable and what are not. If youre planning on rehabilitating a property, then reselling it as a single family residence, purchasing a small ranch house on the edge of the city may be a perfectly profitable proposition. Youll likely be able to sell the property for more than you paid for it and justify the investment.
On the other hand, if youre planning on renting the property out youre going to want to investigate the current rental rates of the neighborhood before youll be able to determine the success of the investment with any degree of accuracy. There are some areas where income based housing drives the average rental price of the neighborhood down, which is good news for renters but could result in major inconvenience for the investor who has paid hundreds of thousands of dollars for a property that they are only going to be able to rent for a couple hundred dollars a month.
The moral of our story? Take the time to carefully consider your options and do your homework before closing the deal, no matter how appealing that deal may be.
Of course, if youve been investing in real estate for the past ten years none of this is news to you! Experienced investors who are familiar with things like market trends and identifying weaknesses in potential properties will find the buffet of low priced real estate spread out before them a tempting proposition, and reaching beyond their immediate demographic boundaries may offer a new wealth of possibilities for tremendous profit gain.
Just remember that investing during a recession is a slightly different proposition than investing when the economy is booming. Youre going to hear me say this over and over again, because it cant be emphasized enough-when youre investing in real estate during a recession youre investing in the long term. Many of todays real estate investors have made their fortune in the market by taking advantage of todays Now, now, now! mindset and investing in and disposing of real estate in a very brief amount of time. When the economy is strong its not at all unusual for an experienced investor to be able to purchase and flip a property within the space of a week-experienced rehabbers in a month of less. Any property that you invest in during a recession may remain in your possession for several months before you are able to realize a maximum return, because the whole point of investing during a recession is to purchase an asset at the lowest price possible and sell it when the economy goes back up.
Its rare for the experienced investor to find themselves in this situation, but its entirely possible to spread yourself too thin when the temptation of pages upon pages of available property was just too much to resist. Suddenly theyre responsible not only for the amount theyve paid for the initial investment to purchase the property in the first place, but for the taxes, rehabilitation and maintenance required to keep it maintained and prepare it for sale.
Try to limit yourself with a realistic expectation of what you can afford in the long term. If as the recession continues you find you have more than enough capital in hand to pick up a couple more properties you always have that option, but disposing of a property you can no longer afford during a recession can be more difficult than taking a submarine and going diving for Atlantis-which is the reason that investing in real estate during a recession is so lucrative to begin with.
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