Is your investment income looking a bit pale and fatigued? Do you become nauseated at the site of your profit and loss statement? Are you itching to sell properties that are losing money? Chances are you're suffering from a lingering case of anemic profitosis.
Sooner or later many real estate investors begin to show symptoms of this affliction. Occurrences of this disease are most common during times of transition in the real estate markets. At present we are moving from a hot sellers market to a cooler buyers market. The changing conditions often catch many investors holding properties that just won't move. This extra inventory can leave you feeling bloated and irritable. The result can be a devastating case of anemic profitosis.
One of the primary causes of anemic profitosis is severe swelling in the taxinus maximus. In most markets, this condition usually develops slowly over time, and tends to get worse year by year if left untreated. In some areas swelling property tax rates have all but wiped out positive cashflow. In extreme cases this can lead to a very bad rash of selling among landlords who did not realize that they were paying too much for their property at the time they bought it. Like many afflictions, anemic profitosis can be difficult to detect in the early stages.
Another common cause of anemic profitosis is buying pre-construction at near full price, then discovering afterward that there is not enough appreciation to cover your costs. This painful condition is often accompanied by sleeplessness, migraine headaches and multiple trips to the lenders office to beg for deferred payments. Symptoms include buying preconstruction condo developments in Florida, in markets that are already overbuilt and oversold to investors.
Chronic cases of anemic profitosis often arise when investors associate with high-risk groups. Chief among such groups are marketing gimmicks that offer to find houses for investors. Symptoms of this malady include paying a fee to join a group or club that will find the houses, arrange for your financing and take care of all of the details for you. A key symptom is the fact that you do not need to know anything about real estate investing. In many cases this leads to swollen purchase prices which can inflame or burst your budget, leading to severe financial emergencies. This situation can also be difficult to detect in the early stages, so it is best to avoid all contact with such high risk groups.
If you are an investor who is struggling with anemic profitosis, take heart. There is a cure.
Of course like they say An ounce of prevention is worth a pound of cure. But in this case the same solution that can cure this malady can also prevent it if the symptoms are caught early enough.
The only known cure and the only known way to prevent anemic profitosis is to develop an excellent understanding of real estate fundamentals. Investors who are immune to anemic profitosis or have recovered from it have discovered that the profit is really made when you buy; therefore Buying Right is the key to avoiding a nasty case of anemic profitosis. Buyers-Anonymous is full of recovering investors who admit that they got involved in deals they did not understand, with people they did not know.
Investors that earn healthy profits in any market will tell you that they don't buy anything unless the price is right. But these investors have the ability to determine what the right price is; because they understand the fundamentals of the market they're working in and generally choose a more conservative, common sense approach to their investing strategy.
The bottom line is that all strategies work sometimes but no strategy works every time. In order to understand what strategy will work in a given situation it is necessary to understand the fundamentals of that particular investment and choose the strategy that will work best within the given circumstances.
Fundamentals will affect your strategy choices, but strategy choices cannot change the fundamentals. For example:
Interest rates are a fundamental issue. Each investor will be able to qualify for financing at a certain interest rate. For some investors this interest rate will be low, for other investors this interest rate may be several points higher. Some investors will be able to pay all cash and will not have an interest rate at all. In all three cases the costs of funding will vary and strategy decisions may be altered in each case due to the cost of funds. Whatever strategy you choose, your cost of funds will be a fundamental issue that you will have to work with.
When interest rates are low, financing is easier to get, there are more buyers, so you can sell faster for more money. This condition makes for a better chance of fast cash profits. But when interest rates are rising, fewer buyers can qualify for a home. So they move into rental apartments and houses instead. Therefore rental income tends to grow, and income properties will cashflow better. And, creative seller financing is easier to find in a buyers market.
Equity is a central fundamental issue. Simply put, the more equity in the property, generally the better the profits will be. It is much more difficult to make a profit from low equity deals than it is to profit from high equity situations. Equity gives you more flexibility, and more exit strategy choices.
Property Taxes are a major fundamental issue. No matter what type of property you purchase, no matter what investing strategy you choose, property taxes will affect your profitability.
There are many other fundamentals issues such as location, area demographics, and available inventory, just to name a few.
Adaptability is the key to avoiding chronic cases of anemic profitosis. The ability to adapt to changing market conditions comes only from understanding how the fundamentals will affect your investment. Whether commercial or residential, healthy long-term investing requires the ability to analyze your market, and make adjustments to your buying and selling strategy for maximum profitability.
Whether you are suffering from a lingering case of anemic profitosis, or you want to avoid this affliction entirely, you'll need quality investing education that teaches you how to understand the fundamentals and then apply them to create profitable investing opportunities in any market.
Donna Robinson is a real estate investor, consultant and market analyst, based in Atlanta, GA. You can get more information about avoiding the disabling effects of anemic profitosis on her website: http://www.REIUonline.com
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