Cash Is King in Today's Real Estate, But Have an Exit Strategy

For cash buyers in today's real estate market, the power to offer cash funding and a quick close can translate into a better purchase price. Motivated sellers can include banks that have many properties to sell, individuals who need to move and have been unsuccessful in selling for some time, and homeowners in financial distress. While it always feels great to know you got a good price for your home or investment, in today's market the smart cash buyer will also have an exit strategy before tying up his cash.

Two common real estate investment strategies are: 1. Flip and 2. Buy and Hold.

"Flipping" a property refers to purchasing a property below market value, repairing and renovating it appropriately, and then selling as quickly as possible. An investor's ability to flip a property depends on timing and keeping costs down, including original purchase price. Some people make good incomes flipping property. However, it is possible that one or more properties purchased to "flip" will not sell, or will not sell in a timely manner. The best way to minimize risk in this scenario is to purchase investment properties only when a realistic market rent will cover your costs, as well as cover a mortgage should you be forced into a long hold. This way, you can recover 60 - 90% of your cash by taking a mortgage on the property, and let rents will cover expenses until the market recovers and you can more easily sell.

Historically, the California market has lofty peaks and deep valleys with an approximately 12 -18 year cycle from one peak to the next. The peak in 1989 was followed by a low around 1994. The next upward climb started gaining momentum around 1998 - 2000, but did not peak until 2006, 18 years from the previous. If the peak was in 2006 and we are close to the bottom in real estate now, there is a long, slow climb ahead before prices heat up once more.

To "Buy and Hold" may be the most common real estate investment strategy. Values go up over time, sometimes with a dip in between peaks. A common error many real estate buyers made during the early 2000's was buying for appreciation instead of cash flow. When a market is appreciating quickly, it is hard to match the cash on cash return for doing nothing but holding title on a property. However, without an ability to rent that property for at least break even cash flow, the buyer has made a bet on appreciation with a huge risk of carrying heavy costs if the market or events do not go as planned.

Whether in 2011 we are at the bottom of the real estate price fall for this cycle or close to it, real estate purchases made well in the next 2 - 5 years will set investors up for exciting returns over the following decade. If you buy for cash flow when the market is down and people are eager to sell, your investments will serve you well. 

Joan Weisman, is a fourth generation California native and has been active in Real Estate since 1998. Joan Weisman values her client's success, and strives for the win-win solution. Joan has lived in Dana Point since 2004. She is SFR Certified with the National Association of Realtors. As your agent, Joan is efficient, effective and on your side.

Ms. Weisman is a past President of her Toastmasters club (July 2009 - Dec 2010) and is currently serving as Area G-5 Governor for Toastmasters International (July 2010 - June 2011). She is a member of the National Association of Realtors, California Association of Realtors, and the Local Southern California Multiple Listing Service.

Joan Weisman graduated from Yale University in New Haven, CT with Distinction in the major of Psychology (1995). She has been investing since 1998, licensed since 1999 and a broker since 2003. 

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