I hear many Real Estate Investors crying the blues that this market, this economy is really hurting their bottom line. Yet there are other investors doing well in these current economic times.  What is the difference? Proper planning.  I remember an old saying from a driver’s education class; look ahead and get the big picture.  Many investors didn’t look far enough ahead but more importantly, many of us didn’t foresee the economy presenting itself in such a distressed situation. 

A few years back (it seems like a long time ago now) things were good all the way around.  The auto companies were doing well and there was plenty of money in the local economy.  We enjoyed annual double-digit property value increases and vacancies were low.  I did, as many investors did, refinanced my properties to lower the interest rate and pull some cash out.   What a surprise when we got those appraisals back and the numbers looked good, real good.   So what did many investors do? Ninety to One Hundred percent cash out re-finances.  What a great deal to lower the interest rate and have cash in your hand; not subject to tax until the property is sold.   Many of us used that money to invest in more properties or rehab the ones we already owned. For the short term this was great and we felt good about owning several properties and could see the success of our business growing; for the long term not as good as many are now discovering.  In most cases this left the properties with little to no equity and minimal positive cash flow.  A formula for disaster!!

Although the economy is difficult for many people, investing in real estate is still and always has been a good decision.  If the equity in the properties can be maintained and you can collect the rents, it may a better idea to wait it out until the economy rebounds.  It is important to continually analyze your finances while looking ahead at what you may need to do.  Sell what is not performing for you and keep the ones that are.  There have always been two very important factors I look at with each of my properties.  Cash flow and equity; if both elements don’t exist I would rather sell than refinance the property.

The positive side to the current economic conditions is the surplus of homes on the market.  With interest rates still low this may be one of the best times to buy and hold properties.  There are many great deals to be had out there!

Remember to always look ahead and see the big picture!!

Chris Yatooma, President

Real Estate Investors Association of Oakland