The consensus is almost deafening. This is the time to invest in real estate (RE), there's no doubt about that. But there are four questions that you must be able to answer before choosing your strategy and plunging into the icy waters of today's real estate markets:
What to buy? Where to buy? What strategies are working best in today's markets? What role does real estate marketing play in growing profits and safeguarding by RE business?
Baby Boomers Dominate Free and Clear Markets
Right now, one of my favorite strategies is high-equity free and clear RE investing. These properties have little to no mortgage debt and, with the right real estate marketing and evidence-based decision-making, the sky is the limit for savvy real estate investors.
For those who want to get in on the action, ensure cash flow and protect their portfolios, investing in free and clear properties and becoming a landlord are promising strategies.
Understanding the demographics and psychology and trends that motivate free and clear sellers and drive rental markets illuminates what the "big picture" has in store for wise investors and is critical to safeguarding your business and your future.
Homeowners Seeking Stability, Cash Flow
It's no secret that Baby Boomers (or those born during the post-WWII baby boom that took place in the United States from the mid 1940s through the mid 1960s), not only make up one of the largest segments of the U.S. population, the also comprise a huge group of homeowners with high equity and relatively low mortgage debt.
In many cases, these folks also are grappling with job shortages, woefully under-funded Social Security and Medicare systems, soaring insurance costs and diminishing values on what's been for many their largest nest egg: the homes they've worked most of their lives to acquire, finally free and clear of mortgage debt but often suffering from years of deferred maintenance.
Asset Ownership vs. Liquidity
According to the U.S. Census Bureau, there are approximately 24 million free and clear homeowners in the United States. Forbes magazine reports that a growing number of these homeowners are feeling the pressure of tightening credit markets and a languishing economy.
While they may "have it all" many Baby Boomers are struggling to keep it. These folks are facing a dismal economy as they limp towards retirement with an uncertain future. Baby boomers are confronting rising costs of living and health care, diminished value of their investments, and social security payments that often fail to cover basic household expenses, a growing number of retirees looking for cash flow to achieve basic sustainability.
Demand for Affordable Rentals Set to Surge
The most pressing decision for many homeowners in this growing demographic is when to sell their single-family homes and move on to more modest accommodations.
Analysts already are predicting that the number homes listed for resale will skyrocket over the next decade. And once they're sold, fewer sellers are likely to reinvest in housing markets, even for downsized dwellings. A growing number of them will seek rental housing.
These shifting patterns in income and homeownership are likely to have a dramatic impact on the demand for rental housing, especially that which is deemed "affordable" in virtually any given RE market.
Trendspotting in Current Research
This trend also is likely to gain momentum based on the fact that during the RE boom, a huge proportion of rental housing disappeared from that market as more homes were sold as primary residences, many of which have gone into foreclosure.
According to Harvard University's Joint Center for Housing, the latest trend to hit the U.S. housing market is the search for affordable rental units. In 2007, completions of multifamily dwellings for rent fell to 169,000 units-just two-thirds of the 2002 inventory and only one-third of the record high reported in 1986.
Real estate entrepreneurs who engage in the landlord game these days can jump ahead of the herd by snatching up great deals on rental housing. Doing so will ensure steady cash flow as markets stabilize and home prices begin to rebound from recent losses. But as with any of the best investment ideas ever conceived, the devil truly is in the details.
Guaranteed Cash Flow Carries Responsibilities, Risks
It is important to note, that even investing in free and clear properties to ensure rental income carries some risks and that many investors have been burned by bad (or neglected) real estate marketing, finance decisions and miscalculated market values. (Had they done their homework, many of them would have known that they could pull it off with no cash or credit.)
Though landlording is an enduring investment strategy, and can be a great way to buy and hold investment properties, it is not an effortless endeavor. In this arena, it's critical that investors carefully consider real estate marketing, costs, markets, local landlord tenant laws and potential administrative burdens associated with being a landlord.
The National Low Income Housing Coalition reports that nearly 40 percent of U.S. foreclosures involve rental properties affecting more than 168,000 households. According to the same report, roughly half of the recent foreclosures in Illinois, Nevada, and New York involved rental properties.
Things to Think About Before you Invest
While investing in rental properties is an excellent way to buy and hold high-equity free and clear investment properties and ensure cash flow, it is important to research the full range of responsibilities you'll take on as a landlord. Top considerations include real estate marketing and your overall investment strategy: where you'll invest, going rates for rents and whether local economies support those prices and how to know when you're getting the best possible deals.
Don't Put the Cart Before the Horse
First and foremost in your strategy arsenal as a savvy Real Estate investor is the mission critical decisions you'll make about your real estate marketing. If real estate marketing doesn't top your agenda, your business may not survive these market changes and your spreadsheets are likely to choke on red ink. Seek professional guidance on all of your real estate marketing and investment decisions to protect yourself -- and your business from uncertainty and failure.