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Houston Texas Real Estate Blog > Five Ways to Make Money In a Down Real Estate MarketFive Ways to Make Money In a Down Real Estate MarketContributed by Frank Schulte-Ladbeck on January 8, 2008 Times are not good for real estate professionals. Many of my peers are leaving the profession, and we are bound to hear more bad news for homeowners in the first part of the year. With news of more foreclosures coming onto the market, the situation begs for the question: can you make money in a down market? Although it is more difficult, there are means of developing an income stream from real estate at this time. I am mainly thinking of the Houston market when I write this post, but some rules apply to other parts of the country. The main thing for you to do first is some homework on my suggestions to see if it applies to your area or to your situation. Remember that investments are always a risk, wether in a good or bad market, so you also have to be prepared to take some loss. See if your finances can handle this investment. Never invest money which you cannot afford. Alright, let us dive in. 1. Invest in a REIT. REIT stands for real estate investment trust. These firms can specialize in a certain property type, such as hotels, office buildings, or hospitals. They can also be global, owning properties the world over, or they could be local, owning all of their properties in one city or state. By law, they are required to distribute the majority of their profits to their shareholders at the end of their fiscal year. I would go after REITs that have rental, medical, or office properties in good markets. If the REITs are global, they should fare better in harder economic times. The REITs that I own went down some from their highs of last year, but even the hotel one is doing decently. You can buy shares in REITs through your broker. 2. Buy and hold a house before you flip it. Job growth in Houston is good, and reports from various industry professionals suggest that they feel that we will see buyers entering the market later this year (like at the end of the school year). Find a good deal now, and take your time to fix it up for resale. The problem with this strategy is that you will have to pay the mortgage and other costs till the market improves in five months. 3. Buy to a foreclosure to rent. Most people in the real estate industry agree that buying a house to rent to others is the best way to make money over the long run. By setting the rent above the mortgage payment amount, you make a little additional money each month. Probably two hundred dollars. By holding the house over a long time, it will appreciate in value, giving you the big payout in the end. The down side to this investment is that you are now a landlord, and you will have to find ways to meet those responsibilities. One easy way is to buy a home warranty insurance to handle all of the little break downs, so your tenants call them instead of you. 4. Go into commercial real estate. Retail centers are still being built here in Houston, but the market might not bare much more with our current economic condition. There are two types of commercial real estate that do offer opportunities: apartments and office space. Properties with up to four units for living are treated fairly much as single family homes under the law, so I am speaking of apartment complexes with more than four units. I have encountered six and eight unit complexes in some areas that were not much more than a single family home in my neighborhood. With oil prices so high per barrel, Houston's oil industry is hiring. Some of these people will be consultants who will need their own office space. Sometimes an old home can be turned into some nice office space for this group of professionals, but you can find some smaller buildings too. The downside to this investment is that it generally requires some more up front capital. 5. Combine the idea of the REIT with the idea of going into commercial real estate by yourself. There are some limited liability corporations which will give smaller investors the chance to own local commercial properties. If you and a group of others have the means, you may fund such a corporation yourself, but this does mean some more work on your part. I know that there are some firms out there, but I have never used this route, so I suggest it without having good knowledge on the topic. By being a partner, you do have some liabilities for debts or law suits that may arise, so speak to an attorney or accountant before forming one on your own. With existing firms, request a prospectus or some form of advertising that goes over the conditions of becoming a partner in such a corporation. The upside is that there are others in the same boat, so the risk is spread amongst you. Well, that is my five suggestions. I tried to put them in the order of safest to riskiest from my standpoint, but as a reminder, all carry some risk. Just start doing some research to find out what might be best for you. Understand your own financial situation first. Many people who rushed into investing last year are now finding themselves in financial difficulty, but these were people who did not evaluate their options or understand their own finances. In the end, housing and land prices will rise again, just like the stock market. Have time on your side, and you surely will win. Comments:No comments have been submitted yet.
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