What real estate to buy in 2008.

This week we attended a meeting of the New Jersey Real Estate Investment Club. The topic this week was What real estate to buy in 2008. The founder of the club, Christopher Goodson, was going to talk to us about his recommendation for investing in the New Year. Since it is a real estate investing club, it was no surprise that he recommended investing in real estate. It is also important to point out that he recommended buying real estate for the long term, and not flipping or short sales. He had a lot of good things to say about flipping and short sales, but he believes that it is vital to invest in real estate for the long term.

He believes, as a lot of economists currently do, that we are in a recession. A recession is simply defined as “A period of general economic decline, specifically, a decline in GDP for two or more consecutive quarters.” I have never followed the GDP levels, but from what I have heard, it is easy to believe that we are in a recession. But being in a recession is not necessarily a bad thing, especially for people just starting to invest in real estate. I am a big believer in going back to the basics. Everything that we do is based off of some basic facts and ideas. It is vital to never forget those basics, or any new knowledge gained is baseless. These are some of the basics that were reviewed before Mr. Goodson made any investing suggestions:

There are 4 ways to make money in real estate:
1- Rental Income (cash flow)
2- Depreciation (phantom cash flow)
3- Amortization
4- Appreciation

Mr. Goodson believes that a lot of the problems that investors are having is because they bought real estate based on appreciation only. We were in a long period of time that saw unprecedented increases in real estate appreciation. A lot of investors were buying real estate based solely on the appreciation. They were willing to lose some money every month in hopes to make it all back plus extra when they finally sold. Those who did not sell prior to the downturn of the market have not been getting the returns they expected, and I am sure that a number of them have lost money.

The main thing that he stressed throughout the whole meeting was that you should only buy real estate that is cash flow positive, even if your goal is appreciation. In a nutshell this is what he was recommending to all of us for 2008. Only buy real estate that cash flows. He also recommended buying 2-3 family houses. (Please keep in mind that he is only speaking about buying real estate in the New York/New Jersey/Pennsylvania Metropolitan Area. The rest of the country was not discussed.) He made this recommendation because of the abundance of these types of properties, and the ease of using alternate types of creative financing, such as seller financing. Since real estate has not been selling quickly in this area, sellers are going to be more willing to make creative deals now, in order to make the sale.