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Wednesday, October 21, 2009

I was asked what the magic trick was, or which bank I was paying off. I stated no just simple rules of engagement!

New Rules for Investing after the Bust

Investing in short sales / REO's after the big real estate bust is different.
There was a time not so long ago when the only factor required to make a profit in real estate was ownership; wait long enough and the price would go up magically.
There was little need to repair, renovate or even rent out the property. Just sit on it a few months and allow the market to drive up the cost until it was time to sell. Today, things are not so simple; it requires an entirely different mindset to invest in real estate after the bust but that doesn’t mean there are no profits to be made.

In fact, there might be more profits than EVER for those willing to keep pace with change and modify their investment strategy.

Here to help are new rules for investing in short sales / REO's after the big bust:

1. Know the Area and Audience. Take the time to understand the area, target audience and banks you will be working with. The more informed you are the better prepared you will be to take advantage of the best opportunities.

2. Follow the dumb-money. Unlike investing in the stock market where people constantly try to figure out where the smart money is going…short sale / REO investors should be on the trail of ‘dumb money’…those people that bought more than they could afford, failed to have a safety net or otherwise need out –now. You are their solution so search for the problem.

3. Don’t take it personally. While some media pundits make short sale / REO investors out to be greedy land barons (you should be so lucky!), the reality is those that dislike short sales / REO's are no more honest nor less self-interested than those that deal directly with foreclosures, by-owner listings or other types of investments.

4. Understand opportunity. There are times when “averages” don’t truly reflect the full value of short sales / REO's; remember, there are always bad deals made by ill-informed people including those new to short sale / REO investing. Unfortunately, it tends to drive down the full potential by hiding the outstanding profit potential realized by those that work deals right from start to finish.

5. Admit when you are wrong. Falling in love with a property happens – it shouldn’t but it does. Learn how to cut your losses and work this system like a business. If you don’t know enough – learn it. If you are making emotional decisions – get a mentor. Everyone has something to learn so face the facts…admit when you are wrong or in need of help then take action.

6. Don’t take advice from inferior agents or others without a proven track record! Book knowledge is one thing but results are entirely something else. Before taking advice from anyone – ask to see their real results….the ones with the dollar sign in front. Then ask to see how many times they were able to repeat the results. Remember, anyone can get lucky once in awhile but that doesn’t mean they have a system that really works. (NOT LIKE MINE!!!)

7. Portfolio’s matter especially when credit gets tight. Have a track record of success to show prospective lenders – it makes each consecutive deal even easier.

8. For the right price even inferior properties can be a good buy. Perhaps a house isn’t to your personal preference but it could be the perfect bachelor pad for someone that desires low cost and easy maintenance; whatever the specifics of the property may be – chances are it works for someone. Learn to ascertain the value of the property by price, cash flow and appreciation rather than personal preference.

9. Keep your eye on the big picture. Know why you are investing in short sales / REO's and then work the program.

10. Beware of hysterical analogies. Yes, the nation has problems but we’ve had problems before. Rather than take a hysterical outlook on life, learn how to become proactive instead. It refines the ability to invest, protect your financial future and form a strategy for tomorrow. Even if this nation were to confront a “lost decade” like that experienced by Japan…take a look at how real estate performed. While it didn’t go up (little did), it managed to hold its own…an impressive feat considering they have 100 year mortgages (intergenerational) in some part of Japan.


  1. Thanks for the great words of wisdom. I always look forward to see what knowledge I can pick up from your blog.