Buy Low, Sell High

Bernard Baruch, the greatest stock trader of all time, was once asked the secret of his success. Upon momentary reflection, he offered: "I buy all the way down and sell all the way up". To any stock jockey, it made perfect sense. He was distilling years of experience into one sentence. What Mr. Baruch portrayed was a contrarian notion of running in the opposite direction of the herd.

As a former stockbroker, I can tell you that I have witnessed the herd instinct first hand and it's truly amazing. When the financial markets are overheated and pundits begin to posit that all of the old rules no longer apply, everyone seems to want to begin investing in stocks. When the financial markets are headed sideways to south no one wants to get involved. Hindsight being 20/20, the Baruch style would have us in cash at the top and buying everything on sale on the way down. Of course, the herd will be buying at the top and too scared to touch anything in "bad markets", afraid of not knowing where the bottom actually is.

Real Estate is simply another asset class from stocks and bonds. It has always been seen as a hedge on inflation, the only way to really accumulate wealth, Warren Buffet notwithstanding and for 50 years, with few interruptions, a safe bet for your serious money. Welcome to reality. As a realtor, I can now tell you that the herds haven't changed. Everyone wanted in when there seemed to be no end to appreciation and everyone is sitting on the sidelines now that the media has us in "the worst real estate crises in 50 years". Go figure.

Realistically, with most of our wealth typically tied up in our home(s), when we visit this type of economy, most of us have little chance to avail ourselves of the bargains that exist in real property. And of course, the bankers, who followed each other like lemmings off the cliff of "me-too-ism" aren't loaning anything to anyone. Getting a mortgage for one's primary residence can be an education about what your credit score really means.

If you're one of the lucky few that are sitting on cash and believe in real estate, now is the time to start really looking for investment property. Beyond the auctions of record foreclosures, there are true bargains out there. If you're new at this, start modestly and carefully but look in neighborhoods you know well. Reality hasn't quite set in for everyone so there will still be sellers trying to get the perceived value of 2006 from their home or land. Let them go. They'll still be waiting this time next year.

Basically, you will be looking for one of two types of property. Developed or undeveloped. Developed already has improvements of some kind on it. Undeveloped is basically land, or land that has some type of improvements to it that are unusuable. For our discussion, let's stick with improved property. In this group, there are again two basic classes- those ready to move in and those that need work. This applies to either commercial or residential property.

Normally, improved property that is in excellent shape will bring far more to the seller than a poorly maintained property or one that is so outdated as to be perceived as unusuable in its current condition. You must make your choice. Do you pay the premium and have little or no work involved in your purchase? Or do you assess the monetary costs associated with bringing a fixer-upper up to usuable condition which will also obligate you to manage that process.

Finally, will you be able financially to survive until the market recovers? For me, I would stick to single family dwellings in my area that are selling at distressed or even reasonable prices. Because I am a homebuilder, it matters not the condition. To you, rennovation costs need to be evaluated, both from a financial and knowledge perspective. Again, start modestly and see how you do. If you are awash in cash, you might want to take on partners who possess the knowledge base you don't. Find a niche that fits your interests and over time, you will accumulate wealth. Don't wait for the bottom. We're never going to know where it is until we read about it in the paper.....