Forclosure properties may be the place you want to be for bottom line ROI.
In my last post, I commented on the importance of timing when it comes to investing in real estate. In my not-so-humble opinion, I believe that timing can be more important than the oft-quoted mantra of real estate gospel, i.e. location, location, location.
For example, when the market is experiencing red-hot acceleration, even mediocre locations can do extremely well. On the other hand, when national real estate trends are doing their best imitation of Jacques Cousteau diving to new depths, even the most attractive locations may not be able to weather the down-draft.
Timing to me is not just figuring out the best time to buy or sell, but more practically, the true significance of timing is concerned with figuring out what is actually working at that moment in time. To help assess this all-important issue, I'd like to review the Five Stages of the Real Estate Cycle. These are:
1) flat to minimal growth
2) starting appreciation
3) accelerating appreciation
4) topping, and
This cycle historically repeats itself ad infinitum (and occasionally ad nauseum), with a general tendency towards upward growth - namely, the trough of the next cycle typically is higher than the trough of the cycle you're currently in.
So what stage are we in now? In most instances, I would respond that it would depend on your geographic location. However, as you can read in any newspaper, regardless of where you look on the map, we are decidedly firmly mired in the fifth and scariest stage—that of depreciation and falling property values.
Real estate transactions that were uniformly successful in stage 3 could be doomed to failure in stage 5. For example, in the mid-2000's, I had great success with condo conversions as well as buying multiple properties from a developer and selling the individual units. Other time periods called for buying and holding homes for cash flow.
About now, I'm sure you're asking, "Well genius, what's working now?" The answer in a word - foreclosures. I know that's not some unheard of news but the simple truth is that foreclosure properties represent not only the best value for your purchasing dollar but also offer the best protection against continued depreciation of property values. And the highest profit margins on foreclosed properties are found in foreclosure and bankruptcy auctions.
But such auctions are not for the uninitiated - for the inexperienced investor, it can be costly place to get an education. Also, you like most doctors probably don't have the time, patience or knowledge to play in this extremely lucrative but equally hostile arena. Is there a way to take advantage of this unique opportunity to access dramatically discounted properties and still keep your day job, your sanity and your bank account intact? I believe the answer is getting involved with limited partnership syndications that specialize in buying and selling these foreclosure properties.
In my next post, I'll give you more details on this type of investment, that even though it is passive in nature, can be extremely dynamic in terms of the bottom-line return-on-investment.