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September 21, 2008

REAL ESTATE DYSFUNCTION

Posted in: ADVICE, FINANCIAL PLANNING, REAL ESTATE, feature3

Are there still deals to be made in the real estate market?

Apparently yes according to a client who builds mixed commercial/residential real estate developments up north.

According to him, not all real estate is in the dumper. He shares that as long as you have time on your side (i.e. can hold onto the properties for 3-5 years), adequate capital, access to credit and the “right” real estate inventory, you will survive this major market correction.

I checked with another client, a successful commercial real estate broker, who shared the same sentiment.

MARKET CORRECTION?
Your interpretation of the market depends on how you are personally positioned.

You probably feel that the economy is moving towards a recession if you are over-leveraged and can’t wait out the real estate market pull-back. Many real estate investors used the “no-money” down strategy or did not take the time to calculate the estimated amount of funds needed to make repairs or maintain the properties in case of vacancies. Unfortunately, some have also lost jobs and not planned for this contingency to cover negative monthly cash flow properties.

On the other hand, you might not be feeling as much pressure and interpret that the economy is experiencing some pull-back or a major market correction if you are holding onto properties that have positive cash flows and manageable debts. Your lifestyle has probably not been altered significantly.

WHAT IF YOUR 9-5 IS SUBSIDIZING YOUR SIDE-LINE REAL ESTATE BUSINESS
Don’t panic. If you are not in foreclosure but starting to feel the stress of your real estate investments, you must take action. immediately.

At a minimum, do the following:

  • Assess where you are (i.e. determine the estimated fair values of all of your real estate, loan positions, cash flows, vacancy rates).
  • Establish a realistic plan of what you feel you should do, based upon your current and most likely future personal situation (i.e. you want an exit strategy if you can’t afford to continue to operating in this manner).
  • Communicate with your lenders if you are behind on your mortgages or think that you will be become delinquent soon to renegotiate.
  • Contact your real estate broker if you are not an experienced or savvy real estate investor.
    If you want to check out a few sources for real estate investors, visit your library and pickup the following books: “The Peebles Principles: Tales and Tactics from an Entrepreneur’s Life of Winning Deals, Succeeding in Business and Creating a Fortune From Scratch,” by Don Peebles; “The Weekend Millionaire’s Secrets to Investing in Real Estate: How to Become Wealthy in Your Spare Time,” by Mike Summey and Roger Dawson; and “Beyond the Bubble: How to Keep the Real Estate Market in Perspective and Profit no Matter What Happens,” by Michael Thomsett and Joshua Kahr.

Real estate investing can be a great investment vehicle to include as part of your portfolio as long as you plan, track and make realistic decisions.

Genevia Gee Fulbright, CPA is President & COO of Fulbright & Fulbright, CPA, PA, a business strategist, tax advisor and author of Make the Leap: Shift from Corporate Worker to Entrepreneur and most recent book Make the Leap: From Mom & Pop to Good Enough to Sell (Infinity Publishing). Her sound financial planning advice tips can be read regularly on www.urbanthoughtcollective.com. Visit Fulbright at www.makeleap.com or call (919)544-0398.


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