Investing in Real Estate – Has the Traditional Advice Been Turned Upside Down?

With people losing their homes and jobs at record numbers, choosing to invest in real estate may not be the best choice at present.

Only five years ago, the American public were in to the ‘ownership society’. It almost seemed that everyone and anyone was obliged to purchase that dream home. The value was certainly there and there was a lender on every corner, ready to make your American dream come true. At the time, investment advice was kind of skewed towards home ownership at any cost.

Even though the mortgage brokers, who knew a particular client was not qualified to assume such a large debt, gave the client real estate investing advice designed not so much towards the borrower’s benefit, as towards making a deal. When home values were rising and interest rates were relatively low, it wasn’t hard to convince a buyer that his or her best move was to buy a home, no matter what. Today, we are all reaping the results of such misinformation.

Even while the $700 billion bailout funds remain in limbo as to how the money will be distributed, and to whom and under what conditions, there are a lot of properties on the market, and as many homeowners facing foreclosure, and possibly, homelessness.

There is no doubt that it’s a buyer’s market. Given the current credit crunch, qualified buyers must either have an almost perfect credit score or tons of cash. If you’re prepared to pay cash for a property, the only real estate investing advice you need or, that matters, is to buy at the bottom. However, the buyer who applies for a mortgage based on his excellent credit, still runs the risk of buying a property that loses value in the near future. The few remaining people who can afford to take such a risk, are not relying on investment advice to guide them. It’s a bottom line proposition.

Bank foreclosure properties are ripe territory for the cash-rich buyer’s objectives. Purchasing a home at bottom dollar affords many opportunities in a rental market. If you have the cash, there are many auctions where you can bid on a bank foreclosure property. Buy cheaply and rent for a fortune. The cash rich buyer, is indeed, in the catbird seat. There isn’t much need for any advice.

The ordinary home buyer, going through conventional channels, must now put at least 20% down and have excellent credit if that borrower hopes to secure the loan. These guidelines would have been sound investment advice, five years ago. However, in these uncertain times, what if this borrower is laid off and cannot make his mortgage payments for three months? Based on a home value of $100,000, he will lose his down of $20,000. What happens if the value of his home declines further? What happens if circumstance forces him to relocate and he’s unable to sell the home?

To wrap it up in a nutshell, unless you can pay cash, the current market is fraught with risk, to the degree that the only sound real estate investing advice is to just stay out of this market until prices stabilize.

But then again, on the other hand, if no one is buying, how will home prices ever become stable enough for qualified buyers to take the plunge? Clearly, there must be a better plan.

Brett Muscio writes and publishes articles on a range of subjects relating to business and real estate investing [http://www.moreinformationon.com/]. More articles on real estate can be found at [http://www.moreinformationon.com/]