The Real Estate Mortgage Crisis is the Perfect Investment Opportunity.

New Years is coming, and on January 1st there will be a lot of bleary-eyed people downing Alka-Seltzer, holding their head in their hands and swearing they’ll never drink again. (Right!) But for those that kept their wits about them this is the perfect opportunity to get a jump on the New Year while the rest of the world is too hung over to pay attention.

The same is true in real estate. For the past five years or so real estate markets have been binge drinking on free flowing credit. But the party has ended, the tap shut off, and the financial hang over is a doozey! Should we swear off real estate forever? Absolutely not! In fact, now is the perfect time to get a jump on good real estate investments while the rest of the world is nursing that hangover. Here are four key reasons why.

A basic principle in the real estate profession is that you make your money on the buy. What this means is that if you pay too much for a property it’s unlikely the market will make it up to the point that you achieve a reasonable return on your investment. Property prices across the country have been dropping steadily for the past year, and this trend is likely to continue for at least another one to two years. With property prices down and investors nervous about real estate we’re entering a buyer’s market that makes it much easier to find a strong value investment.

You’re probably wondering: “why should I invest now if you’re telling me prices might continue dropping for another year or two?” Simple: because precise market timing never works. If we knew exactly when the bubble was peaking millions of people wouldn’t be in such dire straights now. (And if New Years partiers knew exactly when to stop drinking they wouldn’t have such a hangover.) When the absolute bottom becomes clear to the market as a whole, it will turn into a feeding frenzy and the odds of overbidding for low quality assets increases. Besides, real estate is a long-term asset. You should have at least a five year time horizon – which brings me to point number three.

Over the past few years the cheap debt available for real estate made a lot of lower quality properties seem like they were performing well. It didn’t matter as much if rents were not keeping up with the market or if operating costs were running a little high. Today real estate valuations have shifted back to the fundamentals: can the property attract and keep good tenants who’ll pay good rents, and still keep operating expenses low? The property needs to stand on its own, without excessive debt. So now you can look for fundamentally good real estate to hold for the long-term without the irrational bidding wars of recent years.

Finally, what’s often lost among all the headlines lately is that the basic character of real estate hasn’t changed. People still need a place to live, and a place to work; businesses need to manufacture and store their products, and retailers need a place to sell them. Most importantly, this country continues to grow. The U.S. population grows by about 1% every year, or over 3 million people. That’s like a new city the size of Chicago popping up out of nowhere every single year, with all the corresponding roads, houses, jobs, schools, factories, and commerce. Wouldn’t you like to get in on the ground floor of that growth? And that’s before any productivity growth which only increases your opportunity for building wealth. Of course this growth is spread across our vast nation but with the right knowledge and a little work you can find the properties that will bring you great financial rewards in the coming years.

The opportunity to invest in real estate has never been better, but with such a wide variety of investment options, how do you choose? What’s the best way to evaluate a real estate investment? Evaluating a real estate investment starts with evaluating yourself. So this New Year make your resolution to truly evaluate your investment objectives and see how real estate can benefit you – and of course to come back and read my discussions about how to perform these assessments and what types of real estate you should consider.

HAVE A VERY HAPPY NEW YEAR