Are you suffering from Anemic Prophytosis?
Is your investment income looking a bit pale and tired?
Do you have nausea on the site of your profit and loss account?
Are you “in the mood” to sell properties that are losing money?
You most likely have a persistent case of anemic profitosis.
Sooner or later, many real estate investors begin to show symptoms of this affliction.
Occurrences of this disease are more common during times of transition in real estate markets.
We are currently moving from a “hot” seller’s market to a “cooler” buyer’s market.
Changing conditions often trap many investors who have properties that just won’t budge.
This extra inventory can leave you feeling bloated and irritable.
The result can be a devastating case of anemic profitosis.
One of the main causes of anemic profitosis is severe inflammation of the taxinus maximus.
In most markets, this condition generally develops slowly over time and tends to get worse year after year if left untreated. In some areas, rising property tax rates have nearly wiped out positive cash flow.
In extreme cases, this can lead to a very bad sell-off among homeowners who didn’t realize they were paying too much for their property at the time they bought it.
Like many conditions, anemic profitosis can be difficult to detect in the early stages.
Another common cause of anemic profitability is buying preconstruction at near full price and then discovering there isn’t enough appreciation 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 Florida’s pre-construction condominium developments in markets that are already overbuilt and oversold to investors.
Chronic cases of anemic returns often arise when investors associate with “high risk” groups. Chief among those groups are the marketing gimmicks offered by finding homes for investors. Symptoms of this disease include paying a fee to join a group or club that will find the houses, arrange their 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 inflated purchase prices that can inflame or bust your budget, leading to serious financial emergencies. This situation can also be difficult to detect in the early stages, so it is best to avoid all contact with such high-risk groups.
If you are an investor struggling with anemic returns, 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 detected early.
The only known cure and the only known way to prevent anemic profitability is to develop an excellent understanding of real estate fundamentals. Investors who are immune to anemic profit or have recovered from it have found that profit really comes when you buy; therefore, “buy right” is the key to avoiding a nasty case of anemic profitosis.
Buyers-Anonymous is full of recovering investors who admit they got into deals they didn’t understand, with people they didn’t know.
Investors who make healthy profits in any market will tell you that they don’t buy 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 are working 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 works all the time.
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 under the given circumstances.
The fundamentals will affect your strategy choices, but the strategy choices cannot change the fundamentals. For example:
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 change in each case due to the cost of funds. Regardless of the strategy you choose, the cost of funds will be a “critical” issue 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 quick cash profits.
But when interest rates rise, fewer buyers may qualify for a home. So they move into rental apartments and houses. Therefore, rental income tends to grow and income properties will generate better cash flow.
And, creative seller financing is easier to find in a buyer’s market.
Equity is a central fundamental issue. Simply put, the higher the equity in the property, the better the earnings generally. It is much more difficult to profit from low capital operations than it is from high capital situations. Equity gives you more flexibility and more exit strategy options.
Property taxes are an important foundational issue. No matter what type of property you buy, no matter what investment strategy you choose, property taxes will affect your return.
There are many other fundamental issues such as location, area demographics, and available inventory, 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 the fundamentals will affect your investment.
Whether commercial or residential, healthy long-term investing requires the ability to analyze your market and make adjustments to your buying and selling strategy for maximum returns.
Whether you suffer from a prolonged case of earnings anemia or want to avoid this affliction altogether, you’ll 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.