Lately I've been seeing some real estate markets where investor speculation has really been taking off again. Investors are buying up every property they can lay their hands on because they seem like such good deals. A good example of this is the Ft. Myers-Cape Coral area in Florida. This real estate market was very popular during the boom years for investors who had dreams of massive appreciation. As a result home sales went through the roof and tons of new properties were built. The problem was the market tanked before most of these investors could flip their properties.
Now investors have surged back into that market because the home prices have dropped so far and would you believe that the rate of existing home sales is even HIGHER now than it was in the boom years in the Ft. Myers-Cape Coral market? It's almost all investor speculation again.
Now the purpose of this post is not to slam on the Ft. Myers-Cape Coral real estate market. I'm not telling you to buy there any more than I am telling you not to buy there. That is for you to decide for yourself as a real estate investor. I would hope that you would make use of the real estate timing charts at REMarketStats so you can analyze any market before you buy or sell. It's a whole lot safer than just buying because that's what everyone else is doing.
The main reason I'm bringing up this surge in investor speculation in different areas is that I want to encourage you to plan for your exit strategy. What is the purpose of buying your real estate investment? Are you buying planning on future appreciation? Are you buying for cash flow?
In real estate investing it's crucial to have your exit strategy in mind before you buy. How will you get paid and make money on the deal? If you are buying planning on appreciation I strongly urge you to have a look at some real estate timing charts before you buy. If you are just thinking about buying because everyone else is or you heard it's a good deal, I hate to break it to you but you might be in for a long, long wait before your investment starts to climb in value.
Are you buying for cash flow? This is a little safer because if a property cash flows you can pretty much hold it forever, whether the market appreciates or not. I would still recommend looking at real estate market timing charts before you buy. I would do this because, in my opinion, if you had to choose between two properties, both cash flow, but one is in a market that is going to start going up and the other is in a market that is still going down I would definitely want to chose the market that is about to go up. You'll make a lot more money that way. The other thing about cash flow that you need to take into consideration is how is the rental market in that real estate market? No matter how good a deal sounds, if you can't find tenants for it, or are afraid to collect the rent because the neighborhood is so bad, it really isn't a deal worth getting into. Talk to some property managers before you buy. They should be able to give you some information about the rental market in that area.
The other thing that I strongly encourage you to do in addition of planning for your exit strategy is to have a BACKUP PLAN. Unfortunately sometimes things don't go as planned. Your first exit strategy may not always work out the way you wanted. If you have a backup plan in mind you'll be a whole lot better off. It will be much easier for you to deal with whatever problem comes up. For example, if you are buying in a market that is getting ready to go up and you are buying planning for appreciation, that's your first exit strategy. As a backup exit strategy I think it would be good to make sure that the property at least breaks even on cash flow, but preferably cash flows. That way if it takes longer than you anticipated for the values to go up you can at least hold the property and still have it be a sound investment.
This is one of the reasons I don't like negative cash flow investments. It makes it harder to have a strong backup plan when you are bleeding money every month.
Remember, I'm not saying whether you should or should not buy in any particular market you are interested in. That's up to you. I'm urging you to exercise caution. Don't just buy because everyone else is buying or it seems like such a good deal. That's not smart investing. Do some research first and then have your exit strategies in place.
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