Make no mistake about it – a declining real estate market presents some very specific challenges – and unique opportunities as well.

How you approach your investing business OR whether you decide to stick with it will determine whether you look back on this period with regret or satisfaction.

There’s no doubt that real estate investing now and in the next two years will require a different skillset and level of resources than the previous two years- during the boom. However, If you can partner with a team and follow a system using sound investing strategies and do your homework you can still purchase property, factor in the repairs, force the equity/value and have a property that will provide you with a positive monthly cash flow.

• Why do we throw our business into the wind?

• Why do we quit? Why do we give up on our dreams and aspirations?

• Why do we fold when the going gets tough or the market changes?

• Why do we stay in our dead- end jobs that we hate?

The answer to those questions lies in one four letter word… FEAR!

Fear of failure. Fear of success.

Fear of the unexpected. Fear of the uncomfortable.

Think about this for a second.

What happens every time you decide you are going to do something better for

yourself? It could be anything. You decide you are going to start working out

because you want to look and feel better.

What happens? Doubts and excuses begin creeping

into your mind, deterring you from even beginning, or

maybe you catch the flu and decide to skip a few days.

Next thing you know, you’ve skipped a month. Then, you’ve

scrapped the idea altogether.

The journey of real estate investing is no different. Don’t

give in. You can overcome it. I promise you. If you quit,

though, you have no shot.To defeat the fear, you need to be stronger than it,

plow right through it. When you feel that doubt, you have to find the fortitude

to overcome it. Where there is distraction, you find a way

around it. Faith, confidence and self-esteem trumps fear and doubt every time.

As the market goes through this challenging period you’ll see opportunities present themselves that a rising market doesn’t have. When the market is rising and interest rates are low the demand for quality rentals tends to fall because more people are interested in buying houses of their own and can you blame them?

As constricted, declining market tends to put pressure on the rental real estate market – which means opportunities abound for increased rental rates – which means that positive cash flow can grow even more.

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Due diligence is concerned with the investigation of the property being considered for purchase or used for collateral and the assessment and verification of the investment parameters being used to decide whether to invest in a property – either as a direct purchase or a loan. The real estate investor going the solo route will have to do all information gathering, assessment and verification him self.

The investor utilizing the services of a real estate advisor will only have to spot check and verify the due diligence already done by the advisor. As the relationship develops between the investor and his advisor, the investor should be spending less and less time verifying information submitted by the advisor, although the investor should never totally abandon due diligence efforts.

APPRAISAL

The first item to consider when performing due diligence is the appraisal report. We have the appraisal done by an appraiser we know and whose work we are comfortable with. The appraisal is a full appraisal, encompassing market, cost and income approaches to determine value. Although we are most concerned with the comparable sales approach, if the other approaches result in a lower figure we will use the lowest figure to determine value. We insist that at least four comparable properties be used to determine market appraisal, as well as a different four (as rental comps) to determine value by the income approach.

The appraisal report should be fully read to obtain the appraiser’s opinion of the neighborhood and area that the subject property is located in. Appraisals will also have sections pertaining to the growth potential of the property area as well as verification of property demand for rental purposes. All this information must be assimilated by the real estate investor to help determine his degree of interest in investing in the property. The appraiser himself and the appraiser’s work should be familiar to the investor.

The appraiser should be MAI certified, and should have significant experience in appraising and valuing the type of property being considered. Pay particular attention to the comparables being used as a basis for valuing the subject property. These “comp” sales should be recent (one year or less) with few adjustment differentials with the subject property. Especially with residential property appraisals, the comps should be in the same neighborhood as the subject property. Being able to validate the appraisal’s accuracy is an art as much as a science. Specific knowledge of real estate industry procedures and standards are necessary, as well as local knowledge of a particular area. Real estate remains a localized business. If the investor does not have the knowledge to render a reasonable judgment as to real property valuations in a particular location, than outside expertise must be brought in to access the situation.

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