Hot Real Estate in a Down Market?

So late at night, I'm up watching the paid advertisements, getting a feel for what kind of dreck is being foisted off on people who are looking for an honest profitable investment strategy.

I say "dreck" because the only person making millions on late-night advertising shows are the people selling their books and programs. The only reason they sell these programs is because it's more profitable to sell a million one-dollar get rich quick books than it is to try to get rich following the plan. Let's take a look at one scam: buying foreclosed houses and reselling them with instant equity and postive cash flow.

Let's say a house is up for auction from a bank. The house goes for $150,000 even though it appraises at 220,000. The buyer is responsible for any taxes owed, plus the new mortgage they've inherited. Here in Maryland, the legislators are kicking around the idea that they will give people a year to move out if their house is foreclosed or bought  during foreclosure. That's great for them, but suppose you buy a house looking to make a quick buck. Are you ready to wait a year to be able to rent it out? Are you going to take the brunt of their damages to the property while they don't have to pay to live there? Are you going to pay taxzes on a house you can't make money off or renovate or maintain legally?

Hmmmm.... No.

And suppose you buy it cheap and the tenants move out. Great! Now you're stuck trying to sell it or rent it out. Here's a quick clue: Renting out properties never makes you an instant profit. It costs money to rent out property, even if your rent is paid on time. You won't be able to make money off the rent. You profit by covering the mortgage until the property value goes up and then resell it. You're looking at a 2-5% return on investment over 5 years. You aren't going to make much more than you would in a CD.

Unless you have the time to research the houses and find something rare. Remember, there were a million of those books on how to do this that were sold at a dollar, and every one of the people who also bought the book are trying to do what you are trying to do. Do you think you're going to be the one that finds the right property to make a fast profit?

Not likely. Save your money and find something better.

I found an opportunity flipping condos for a company in Florida. It looked brilliant. But then the economy collapsed and they're still trying to sell the same condos they had two years ago. I'm glad I didn't try to get into that market.

True Economic Fortitude means looking closely at the promises people are making, analyzing what you can do, and then making a wise decision at least two weeks after you hear the idea. Don't get sold. You'll just wind up being another sucker.