WHEN PRICES HIT ROCK-BOTTOM, THE SMART GET INVESTING
It’s obvious to all that the real estate market is a suffering market. But whether it has hit rock-bottom is a subject of debate. Is the worst behind us? Or is it yet to come?
According to Scott McGillivray, real estate investment guru and host of three TV shows including the hit program “Income Property,” doubting that now is the time to invest could mean failing to protect your own home.
“In a good market, income properties are a great way for people to make extra money, and in a down market, income properties are a great way for people to hold onto their homes,” he says.
McGillivray, who together with Michael Sarracini runs the Leading Financial Seminar Series and Lifetime Wealth Academy training program, understands that the majority of wealth in real estate is made by taking action when the market is down.
Buy and Hold
“Buy and hold,” McGillivray says. “It’s the perfect opportunity for a real estate investor to take advantage of.”
His strategy is patience.
“Even if the value of our properties goes down, we are still getting our cash flow each month (from renters),” he says. “When we are down, we just sit tight and enjoy that cash flow.”
The opportunity of a down market is an opportunity to get in and immediately enjoy a stream of money. Flipping properties is difficult when the market is weak. The buy and hold strategy is less sexy, but also less stressful.
“Even in a down economy, that positive cash flow doesn’t disappear. People are paying rent that pays down the mortgage,” McGillivray says. “I’d rather be the tortoise than the hare in this situation.”
McGillivray’s partner, Sarracini, says a big part of their strategy involves recognizing they don’t have to limit themselves to the markets in their local economy. Buying and holding can work well in suffering markets, but there are still flourishing markets in the country.
“Different markets are at different stages of the real estate cycle,” he says. “There are still markets that are skyrocketing.”
McGillivray and Sarracini have perfected a system of buying remotely — buying anywhere in the country from anywhere in the country.
“You don’t have to live in a market to make money in that market,” Sarracini says. “You’re not limited to your neighborhood or to how far you can drive. There are always markets making money.”
Market Down, Performance Up
Since the market took a turn for the worse in 2007, McGillivray’s real estate portfolio has been performing much better. The “dozens and dozens” of properties he owns and manages have actually been making more money than before the crash. Affordability ratings are one of the leading tools he uses to guide is investment decisions. The ratings are determined by household income as a percentage of total house value. For example, if the average income in a neighborhood is $100,000 and the average home in the neighborhood is valued at $300,000, the affordability rating is a three, which happens to be the world’s average.
In 2007, the affordability factor in the United States was a seven. Now, it’s a 2.7.
“Things have corrected well in our favor,” McGillivray says.
When McGillivray first got into real estate, he went to seminars with hundreds of different real estate gurus looking for information.
“Everybody seemed like a genius,” he says. “Everything was working.”
Then, the tipping point came and most of the people he was working with started to fall off the map.
Now, he understands that what effective real estate investing is really all about is solid coaching, informed choices, hard work and patience. His authentic, hands-on mentality, which you can see first-hand from watching “Income Property,” focuses on transforming what seems hopeless into something beautiful and profitable. That can-do attitude is the most important education there is.