A few unanswered questions occurred recently regarding the reality behind real estate investing in today’s market. Many of our Secret Academy members asked us questions regarding Nick Ruiz’s claim of making 5 figures on every flip deal in less than 30 days in his course without any money upfront. So it led us to write this article in general about today’s real estate market and how to choose which direction to take.
Well as they always say, real estate is still a great investment and always will be. Not all real estate in all locations will hold the same weight and certain factors like interest rates, buying power, and supply and demand will always weigh on the market and move it up or down. Any investment made in any market in any amount will always hold a risk, which is why its more lucrative than leaving money in a bank and earning .99% on it.
The market still has opportunity and that opportunity has shifted in terms of where and what is most lucrative to invest in. There was a time in the Mid-Atlantic area that made new construction the most lucrative investment one could make, and another time when the market crashed when you could buy a foreclosed home in Miami at 20% of its cash value. Different times add up to different opportunities, all of which are ties to three fundamentals which we will discuss here, so that you no longer have to worry about if something is still good or not.
Cash Buying Power: Regardless that it is in the stock market or real estate, investments are geared to people who are able to invest and therefore markets will shift investment values based on buying power. The more buying power that exists, the more expensive the investments get and the smaller the returns get. In other words, when money becomes very available to people who need investors, they don’t have to give up as much to get money. Its almost no different than demand and supply but you have to understand two folds with buying power. Buying power to return on investment and Buying power to the investment itself.
Supply and Demand: Regardless of where or what you want to buy, understanding supply and demand and the correlation of the two will help you determine what to pay but also forecast how to sell. This methodology can be applied to all goods, from real estate to rice, and will even apply for exotic cars as described in our How to Drive a Luxury Car for Free course. Understand in layman’s terms that the more supply and less demand, the lower the price since everyone wants to sell their unit and what the cheapest consumer is willing to pay will drive the market. In the case of high demand, low supply, the exact opposite happens. The richest consumer and what they are willing to pay drives the market upwards since price is dictated based on how badly someone can afford something.
Interest Rates: This ties into the buying power to a certain degree. While some people have enough to invest in real estate, cars, or other large goods in cash, the majority of the playing field is leveraging loans or playing with other people’s money for an interest rate or shared return. The ticker here is that those who play in cash are only about 2% of the playing population, while the rest leverages credit markets. Therefore you must understand that the majority when able to play because of low enough interest rates will directly impact the supply and demand by increasing demand and the buying power by increasing the amount of play money on the market. This particular matrix also impacts the hype of an investment significantly meaning more people are likely to take further risks using other people’s money than their own. Hyped investments tend to do well when many idiots play the same game, which is why people always say invest when others are afraid and run when others invest.
Understanding how these three major components impact one another will enable you to understand any investment in any market for any reason. This is the true power of understanding the real estate market, rather than trying to figure out if one type of scenario is the right one or not. Don’t follow others, understand why they do what they do and find a way to leverage your own understanding.
