March 8, 2014 | Jason Hartman
Unless you are from a place called Boring, Oregon, you’ve probably never heard anyone encouraging you to purchase ‘boring’ real estate properties before. The truth is, however, if you are getting your property investment ideas from media outlets like cable news stations or talk radio, then you are likely making some poor financial decisions. Rather than listening to ‘hype’ about the latest bubble markets that will inevitably crash and burn sooner than later, take some time to understand what real estate investment is really all about – gradual, predictable, return on investment (ROI).
Why Does The Media Cover ‘Hype’ Real Estate Markets?
A better question is, “Why does the media cover ‘hype’ anything?” and the answer, of course, is… ratings! The media has always, and will always, rely on generating ‘hype’ to sell whatever it is they are selling – newspapers, magazines, or advertising spots on their television shows. Without ‘hype’ the world of media is truly nothing, and would probably go bankrupt overnight.
Now, most of us understand this, at least to an extent. However, when it comes time to sit down and make investment decisions, we can’t help but recall that news anchor howling about a real estate boom in Las Vegas, or that talk radio host claiming unemployment figures have ‘dived’ in California. The stories and angles you hear from mainstream media are an entire conspiracy theory in itself, but that is a conversation for another day. The point here is, as we’ve repeatedly encouraged our subscribers to do in our 10 Commandments of Real Estate Investing, is ALWAYS do your own research!
‘Boring’ Real Estate Markets Vs. ‘Hype’ Real Estate Markets
You are probably thinking, “Great! So, what exactly is a ‘boring’ real estate market?” We are glad you asked! We use the term ‘boring’ to emphasize that wise investment decisions never entail get-rich-quick schemes. Real estate, above all other areas of investment, is a market that REWARDS methodical, thoughtful decisions, and PUNISHES over-ambitious, hasty, or impulsive choices. If you want to be in the business of high-risk gambling, please, do real estate a favor and bring your cash to a casino instead, or consider investing in speculative, unpredictable stock markets.
The now-infamous housing bubble collapse of 2007-2009 saw residential housing being funded at a faster pace (and lower interest rates) than ever before seen in American history, and along with it came soaring prices coupled with insatiable consumer demand (‘buy NOW before you can’t afford to buy’). And who was behind this corrupt, out of control fiasco? Well, that debate will likely never be settled, but Wall Street and the Federal Reserve, along with government sponsored entities (Fannie Mae and Freddie Mac) can all undeniably share the blame. With free-flowing credit (loans) to individual consumers and commercial investors alike – used to fund home purchases that were not sustainable, and housing developments that were not logical – greedy bankers and government bureaucrats sent our country into the worst economic crisis since the Great Depression.
Las Vegas emerged as something of a poster child of the housing collapse, and still to this day (2014) there are hundreds of foreclosed, unfinished, or abandoned residential (and commercial) properties surrounding the entire metropolitan area. The irony is not lost when considering that the gambling capital of America became the unemployment capital of America a few short years later. To make matters worse, a second housing bubble in Las Vegas has now become apparent, caused by yet another artificial surge in consumer demand after hedge-funds bought up too many empty homes and the Nevada government reacted by complicating foreclosure laws! Investors and speculators are once again rushing into the Vegas market to fund NEW housing developments because so many of the (should-be available) distressed properties are not available for sale on the market.
The lesson here should be obvious: Bubble real estate markets, especially those that attract the special attention of entities like Wall Street, investment bankers, mortgage lenders, foreign developers, ratings agencies, hedge funds, or government bureaucrats are NEVER safe investments.
‘Boring’ real estate offers gradual, stable increases in property value over long-term periods of time, that provide a predictable return on investment (ROI).
How To Find The Most ‘Boring’ Real Estate Markets Possible
Now wait just a minute! While ‘boring’ real estate is definitely a good thing, there are property markets out there that would surely be too ‘boring’ to consider as a serious investment option. Keep in mind that most sustainable real estate investments should look attractive to renters – that is, without a reliable LOCAL demand for rental options, a property is most likely NOT a wise investment.
For example, consider a log cabin in the middle of the woods. Definitely a ‘boring’ choice in terms of surroundings – a remote, quiet property in the middle of nature. But the desirable type of ‘boring’ we are talking about here is a different type of boring. While a log cabin may be a dream home for some people, the clear lack of shopping malls, restaurants, commodities, and employers nearby makes it a very risky property to own if you are focused on finding a steady stream of (worth-your-while) renters. And, unless your cabin is literally sitting on top of a gold mine, the chance of the property appreciating in value at a decent or otherwise predictable rate is probably low.
Thankfully, there are investment consultants out there who can help you narrow down the vast world of real estate into specific markets, and even specific properties, that currently look solid. Our team maintains an investment property database that is updated DAILY with FREE public listings that not only tell you residential property locations and prices, but also break down your predicted return on investment (ROI) based on that local market’s recent performance. That being said, here are a few key points in determining whether a real estate market falls into the ‘boring’ category:
- Slow, steady appreciation. We like to see markets with slow, steady appreciation that is going to create long term wealth. A property must make sense the day you buy it. Don’t gamble on expensive markets that ‘could’ have a big increase in appreciation in coming years (or on DEAD markets that have absolutely no immediate demand from renters!).
- Lower price points. Avoiding ‘bubble’ markets starts with finding reasonably priced properties. We like single family homes in ‘yuppie’ neighborhoods that are going to attract the middle class, blue-collar, working family, who tend to be steady, long-term tenants. Avoid high-end, pricey neighborhoods where the rent does not pass our RV Ratio™ standards. After all, how can property value ‘appreciate’ – or profits be made – if prices are high to begin with?
- Safe & convenient. Investing in middle-class neighborhoods not only targets steady, long-term tenants, but has the added benefit of statistically lower crime, and nearby family-oriented commodities like movie theaters, shopping malls, and restaurants. This in turn contributes positively to appreciation, while retaining tenants for a longer period of time. Quite commonly, many ‘low-income areas’ are saturated with housing developments that are older (or part of government programs like Section 8) and need constant repairs to stay up-and-running.
There are dozens of other items that should directly influence your real estate investment decisions. Please consult our team for additional FREE financial planning.
Invest In Places That Make Sense; Live In Places That Don’t!
It’s become something of a motto for our company: “Invest in places that make sense, so that you can live in places that don’t make sense.” Too many first-time real estate investors are controlled by an emotional attachment to a certain city or market, as if they are shopping for their own dream home. This couldn’t be a more foolish approach! Not only does it make you blind to what must matter most – raw numbers – but it sets you up for failure because your mentality is wrong from the start. There is absolutely nothing wrong with wanting to live in Las Vegas, for example, or anywhere else in the world for that matter! But when deciding where to initially invest your hard-earned cash into a profitable, steady, and predictable real estate market, always remember the following:
AVOID ‘HYPE’ – GO FOR BORING!
