Making Money in Real Estate Even in a Down Market

by : Gary Nealon

Everyone is aware of the dramatic changes that have occurred in the national real estate market over the past year or two years. Prior to that, when property values were on a continuous increase, it was easy to buy a house, make some simple improvements, and make a lot of money. This even spawned the rash of home improvement shows and house flipping shows that falsely showed novice real estate flippers making $100,000 - $150,000 on a property in 6-8 weeks. Even in a strong market, this is the exception rather than the norm. In a slow economy, even the most experienced house flippers are having a hard time making a profit off of flipping houses. Now that you have heard the downside, there is a tremendous opportunity for potential investors to make money in real estate, even in a down market.

Before I go into details, let me first say that every market will have it's own opportunities and challenges, so while these ideas have worked in my area (Philadelphia), they may not work in every market.

The more important thing that I suggest to anyone that is interested in getting involved in real estate is to know your market and the neighborhoods in your area. Buying a house one block outside of the up and coming market could literally cost you thousands of dollars. While doing your research, get to know the real estate agents in your area. By simply knowing the agents in your area can mean the difference between making money and losing money by getting the inside track on properties that are coming up for sale before they are listed.

Regardless of what anyone says, the best way to break into the real estate market is through rental properties. Buying a couple of rental properties means steady income, even in a down economy, and after a couple of years gives you equity to use towards other properties. That being said, not every rental property is the same. Again, do some research. An area such as the Manayunk section of Philadelphia is a great place to buy a rental property because it is predominately younger people that are just coming out of college, with a steady income. They don't have the capital built up to buy their own place yet, but yet they have a steady job and you are more likely to get paid. In addition to the rental income, multi-unit rental properties in a good area tend to appreciate even in a down market, because they have residual income coming in. Long term tenants means reliable revenue.

If you don't want the responsibility of managing rental properties, there are still plenty of opportunities out there to make money off the real estate market. The biggest of those opportunities being the foreclosure market. Unfortunately, in the current state of the market, there are a lot of home owners that simply can't afford their mortgage payment anymore due to balloon payments or adjustable arms. Rather than going to foreclosure and creating a credit nightmare, in most cases homeowners will let an investor step in and take over the mortgage. In this case, you have a guaranteed rentor and due to the equity that most likely been built up in the house, you can get a lower monthly payment than the current home owner.

If foreclosure properties are not what you are looking for, you can still get some deals to flip a house. The key to making money in a buyer market is cash. If you have the cash in hand, you can find a house in the most desirable neighborhoods that will need only cosmetic changes to improve the value of the house. This requires access to the money, connections in real estate, and the ability to budget a project and stick to it.

So while property values are at an all time low, there are still plenty of ways to make money in real estate during a down market.