Does your investment income look a bit pale and fatigued?
Nauseous at the site of your profit and loss statement?
Do you “feel like” selling properties that are losing money?
You are most likely suffering from a persistent case of anemic profitosis.
Sooner or later many real estate investors begin to show symptoms of this affliction.
The appearances of this disease are more common during the times of transition in the real estate markets.
Today we are moving from a “hot” seller’s market to a “cooler” buyer’s market.
Changing conditions often trap many investors with properties that just won’t budge.
This extra inventory can make you feel bloated and irritable.
The result can be a devastating case of anemic profitosis.
One of the main causes of anemic profitosis is severe swelling of the taxinus maximus.
In most markets, this condition generally develops slowly over time and tends to worsen year after year if left untreated. In some areas, rising property tax rates have all but erased positive cash flow.
In extreme cases, this can lead to a very bad sales streak among homeowners who didn’t realize they were paying too much for their property at the time they bought it.
Like many other diseases, anemic profitosis can be difficult to detect in the early stages.
Another common cause of anemic profitosis is buying the preconstruction at near full price, and then discovering that there is not enough value to cover your costs. This painful condition is often accompanied by insomnia, migraines, and multiple trips to the lender’s office to beg for deferred payments. Symptoms include buying pre-construction condo developments in Florida, in markets that are already over-built and oversold to investors.
Chronic cases of anemic profitosis often arise when investors associate with “high risk” groups. Chief among these groups are the marketing gimmicks that finding houses offer to investors. Symptoms of this disease include paying a fee to join a group or club that will search the houses, organize your financing, and take care of all the “details” for you. A key symptom is the fact that you don’t need to know anything about real estate investing. In many cases, this leads to high purchase prices that can inflame or blow up your budget and cause serious financial emergencies. This situation can also be difficult to detect in the early stages, so it is best to avoid all contact with high-risk groups.
If you are an investor struggling with anemic profitosis, take heart. There is a cure.
Of course, as they say “An ounce of prevention is worth a pound of cure”. But in this case, the same solution that can cure this disease 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 or have recovered from anemic profitosis have found that the profit actually comes when you buy; therefore, “Buying right” is the key to avoiding an unpleasant case of anemic profitosis.
Buyers-Anonymous is full of recovering investors who admit they got involved in deals they didn’t understand, with people they didn’t know.
Investors who make healthy profits in any market will tell you that they are not buying anything unless the price is right. But these investors have the ability to determine what the correct price is; because they understand the fundamentals of the market they work in and generally choose a more conservative and common sense approach to their investment strategy.
The bottom line is that all strategies work sometimes, but no strategy always works.
To understand which strategy will work in a given situation, you need to understand the fundamentals of that particular investment and choose the strategy that will work best in the given circumstances.
Fundamentals will affect your strategy choices, but strategy choices cannot change fundamentals. For instance:
Interest rates are a fundamental issue. Each investor may 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 everything in cash and will not have any interest rate. In all three cases, financing costs will vary and strategic decisions may be modified in each case due to the cost of funds. Whichever strategy you choose, your cost of funds will be a “critical” issue that you will have to work with.
When interest rates are low, it’s easier to get financing, there are more buyers, so you can sell faster for more money. This condition increases the chances of making quick cash gains.
But when interest rates rise, fewer buyers can qualify for a home. So instead, they move into apartments and rental houses. Therefore, rental income tends to grow and income properties will flow better.
And creative seller financing is easier to find in a buyer’s market.
Equity is a fundamental fundamental issue. Simply put, the higher the equity in the property, the generally better the returns. It is much more difficult to profit from low capital operations than it is to profit from high capital situations. Equity gives you more flexibility and more options for exit strategies.
Property taxes are an important fundamental issue. No matter what type of property you buy, no matter what investment strategy you choose, property taxes will affect your profitability.
There are many other critical issues such as location, area demographics, and inventory on hand, 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 fundamentals will affect your investment.
Whether commercial or residential, a healthy long-term investment requires the ability to analyze your market and make adjustments to your buying and selling strategy to obtain maximum returns.
Whether you suffer from a persistent case of anemic profitosis or want to avoid this affliction entirely, you will need a quality investment education that teaches you how to understand the fundamentals and then apply them to create profitable investment opportunities in any market.