A Few Street Smarts Of Investing

When the market was going up at an accelerated pace, according to the study, Naples, Fla., topped the list, with homes 84% overvalued. The study also pointed out undervalued real estate markets like College Station, Texas, where prices were 23% below what the data suggested they should have been. Charleston, S.C., undervalued by 7%; Charlotte, 6%; Huntsville, Ala., 11%; and Lafayette, Ind., 10%...

What does it tell us? Is there any practical advice that I can use as investor? Well, no. Even if you want to follow the theory and rush to College Station, TX, and buy a house there for 23% below what the data suggest it should be, it does not mean that you could sell it with a 23% increase in value. You are not going to bring it to Naples so that you can get 84% of Naples' overvalue plus 23% of College Station's undervalue to a whooping 107%. It does not work this way. There are too many other factors affecting the housing stats. When ITT left Palm Coast and there were tons of available lots for under $10,000, did we all jump on that terrific opportunity? We had plenty of indicators that these prices were too good... When Daytona market started getting out of the decade's stagnation in 1997, did we jump on the opportunity to reserve the condominiums for $1,000 and then have the most incredible ride on appreciation? Very few did. Not because there were no indicators, but because it is not the indicators that make us move, it is the success of others. We smiled at them, we thought we were smart and cautious, but they kept making money. Then we got angry that we were missing the train, so we were in a hurry to catch up. We were so determined that we did not notice that the train gained speed. Now, instead of being angry at ourselves that we got on that train too late, we are angry that we got on it, period. It is not the train, guys, it is us, passengers.

The reality is that in any market condition, whether it is "hot", or nearly dead, there are and will always be opportunities. The beauty of real estate that it is not homogeneous. No matter what the national or state statistic tells you, their big numbers come from thousands of small numbers which, high and low, together make the averages. The house is not just the walls and the roof, the fence and the backyard. Its value may be affected by the value of nearby properties, power lines, easements, etc. The same model and age house may be worth $200K in one location and $500K just a block away.
My friend in 1995 was looking to buy a house in Ponce Inlet on the ocean for $210K. The house needed work, so he ended up buying another house in Ormond for $120,000, which he sold 8 years later for $220K. The oceanfront house was already worth $2 Mil. My friend did not make a mistake with the value of the house. He made a mistake with the value of land.

Do not gamble. If your retirement plans do not depend on your next trip to Las Vegas, do not do it with real estate investment. Do not sign for a new construction just because you plan to flip it and bring somebody to the closing table. You have to be able to close plus to hold to the property for some time. Do not risk your down payment. I agree with a popular belief that there is a northerner out there with money in the pocket and he comes to buy your house. He will, but it may take a year, two or more.
You could do fine with $50,000 to invest in, for example, Palm Coast, FL just at the end of 90s. You needed more cash to get the same return 2-3 years ago, you can again afford investing today, but you would need more cash tomorrow. We see more and more Californians coming to buy properties here, because their dollar stretches further here. They were forced out of California investment field by high initial investment requirements. Therefore, rule number two is that with time you need more and more cash to receive the same returns. In other words this is getting more and more competitive. When everyone scream that the market is disastrous, the values are still higher than 10 years, when they were not disastrous. The longer you wait, the more it cost. Our next disaster market will be more expensive than today.

Rule number four. Do not change the criteria. If you have reserved the unit in a luxury condo with ocean view for $569,000 just because the price per sq. ft. is the lowest in the building, apply the same criteria when selling. You wouldn't sell it later for more money than direct oceanfront units in the same building at the same time.
Investment is the numbers game, so play it accordingly. Time and again we see people buying properties because they like them, or they fix them the way they like them. If you will never sell, do whatever you want. When buying for investment, do not paint the ceilings green just because you son, living in Denver, likes this color. If you are buying a new construction, do not ask the developer to do certain things unless this is what the overwhelming majority of others asked for. At the same time do not tell them not to do what the majority of customers want. Therefore, the rule is that when buying a property as investment; buy what the next buyer would like. Buying new construction, choose only upgrades that are highly visible and have the highest perceived value. Nobody would notice that you have the quietest dishwasher at a cost of additional $800, and everyone would notice a tiled dining room at similar cost.

Rule number five. Set your investment goals when you buy the property. Write them down and try to stick to them. If you are buying the property for $300,000 and plan to make $100,000, wait until you can sell it for $430K-$450K (so that you get $100K profit after you pay the closing costs) and sell it as soon as you can get your price even if the values are on the rise and you can get more money if you wait. If you set your goals realistically, you could be better off selling, and reinvesting $100K plus the cash invested into another property. If you decide to wait, without setting the goal, you are gambling. Your money is tied in the property, and you do not have a clear plan when to unload. Then, if you suddenly unload, you are not ready with the replacement property, and your money will not be working until you find one. The fact is that investors, who follow this rule, have a shorter investment cycle and make more money.

It is definitely worth dealing with professionals. Having a license to sell real estate does not make us professionals. It simply allows us to charge for our services. When it comes to investment, there are not that many agents, who can do it on a truly professional level, even those who invest on their own account. Many investors are thrilled with the process and work with a lot of agents and brokers. If you feel that you know your stuff better than they do, you are either right, or... you simply did not meet the good one yet. Try to find one; it could accelerate achieving your investment goals. Talk to agents and listen whether they make sense. See if they say "no" when you become unrealistic. Trust you gut feelings. If you are blessed and find an agent or a broker, be loyal. Don't be fooled that everybody wants your business. It takes a lot of time and devotion for agents to start seeing your business as their priority. There are plenty of repair shops out there, so why you always take your car to the same mechanic?

There may be no good or bad markets. There are always those, who make money and those, who lose their shirt. Investing is like driving a winding mountainous road, you drove it yesterday, but there may be a huge stone that fell in the morning, and it is right behind a sharp curve. Keep your eyes and mind open, and make sure your brakes are OK.

Jon Zolsky, your Daytoan Beach connection
www.BeautifulFlorida.com