Investors who got caught in the pre-construction bubble listened to advice that described current booming situations in several areas during 2004 and 2005. As a result tens of thousands of eager speculators poured into the market just when wiser pundits were advising their clients to get out of the hot markets in Las Vegas, Phoenix and South Florida. The Investors who survived the pre-construction bust got out at the height because it was clear from analysis of market cycles that the economy would soon be in a downward slide. What comes up must come down.
No one has a crystal ball so accurate that you can take all the risk out of investing. No one could have predicted the nasty hurricane season of 2005 that led to building delays in summer of 2005 and huge construction cost increases in 2006 that further delayed jobs that went into contract a year or more earlier. Only a few naysayers were predicting a total collapse of the housing market, and it turned out those who took a conservative approach to investing in housing in 2004 and 2005 are the ones who prospered.
Those who got caught in the housing bloodbath are now often paralyzed with fear to get into the hunt again. Focusing on the past is just as devastating as focusing exclusively on the present. Let the past inform your future, but not control what you do in the future.
Once again there is a lot of uncertainty in the housing market. Will we go into a double dip recession? Will housing prices scrape along the bottom for a protracted period before a gradual turnaround happens? Who knows for sure? All we can do is watch the trends and project from there. Always have a backup plan that provides an alternate exit strategy in case circumstances change.
In this uncertain environment a strategy of flipping short sale, REO or other wholesale property makes a lot of sense. Even though prices are starting to rise in some markets, many expect further declines or stagnant prices to be widespread over the next couple of years. That means “buy and hold” properties purchased as rentals will need to justify themselves based on cash flow and not on fast appreciation. Only property that can cash flow should be purchased to hold right now. Everything else should be flipped at prices attractive to those who are in a “buy and hold” position right now.
For most Investors accumulating cash through short sales and other transactional deals is the best primary strategy. It allows the Investor to pay down debt and be in a strong position to weather any further dips in the economy. When the ultimate buy signal occurs, short sale investors will be in a great place to take advantage with a strong bank account and low debt to income ratio.