Timing the Real Estate Market : How to Buy Low and Sell High in Real Estate

Cover
Timing the Real Estate Market
	Contents
	Acknowledgments
	Part One  Why Timing the Market Is the Best Way to Make Money in Real Estate
		1  Timing, Timing, Timing!
			Timing the Critical Buying Decision
			Timing the Critical Selling Decision
			My First Lesson in Timing the Real Estate Market
			Timing vs. Location
			Timing vs. Improving Value
			Why Most Investors Don't Pay Enough Attention to Timing
			So, What Is a Real Estate Cycle?
			Maximizing Your Returns Through Timing
			Real Estate Cycles Are Market- and Property-Specific
			Seven Major Trends Impacting Real Estate Cycles
			Sources of Timing Cycles
			Successful Timing Can Be Learned
		2  The Myth of Cash Flow: Why You Don't Make Money "Owning" Real Estate
			My First Big Lesson About How Real Estate Is Not a Cash Flow Business
			My First Lesson in the Importance of Selling
			The Greatest Lie in Real Estate
			The Second Greatest Lie in Real Estate
				REVENUES
				OPERATING EXPENSES
				CAPITAL EXPENSES
				MORTGAGE PAYMENTS
			Don't Believe the Two Greatest Lies in Real Estate—Instead Concentrate on Timing
		3  Lessons I've Learned from Real Estate Cycles of the Last 35 Years
			1974-1976: Big Opportunity in a Down Market
				LESSONS LEARNED AND PRACTICAL TIPS
			1981-1982: Opportunities in a Down Market in the Southwest
				LESSONS LEARNED AND PRACTICAL TIPS
			1986-1990: Success Made Us Forget About Timing the Market—and We Ended in Disaster
				LESSONS LEARNED AND PRACTICAL TIPS
			A Review of the "100-Year Flood" of 1986-1990
				SUPPLY AND DEMAND WERE WAY OUT OF WHACK
				ENTER THE U.S. GOVERNMENT
				LESSONS LEARNED AND PRACTICAL TIPS
			1991-1992: Another Down Cycle
			2000-2003: How Trends Work Against One Another
				LESSONS LEARNED AND PRACTICAL TIPS
			Learning from Past Cycles
		4  The Fundamentals of Pricing: Capitalization Rate and Net Operating Income
			Value vs. Price
			Determining Prices Throughout Real Estate Cycles
			Net Operating Income (NOI)
			Capitalization Rates (Cap Rates)
				CALCULATING CAP RATES
			How Cap Rates Impact Property Pricing
			Why Lower Cap Rates Are Good
			Buy When Cap Rates Are High and Sell When They Are Low
	Part Two  The Seven Trends That Drive Real Estate Timing Decisions
		5  The Seven Major Trends Behind Real Estate Cycles
			The Three National Trends
			National Trend #1: Inflation
				INFLATION CAN TRANSFER RISK FROM REAL ESTATE INVESTORS TO LENDERS
				TOO MUCH INFLATION CAN HURT YOU
				THE PERFECT INFLATIONARY TREND
			National Trend #2: Interest Rates
				THE "GOTCHA CLAUSES"
				LOW INTEREST RATES AREN'T ALWAYS A PLUS
			National Trend #3: Flow of Funds
				WHEN STOCKS ARE HOT, REAL ESTATE IS NOT
				THE IMPACT OF TAX INCENTIVES
				THE ROLE OF FOREIGN MONEY AND MONEY MANAGERS
				PSYCHOLOGY PLAYS A BIG ROLE
				THE IMPACT OF LOWER INTEREST RATES ON FLOW OF FUNDS
			The Four Local Trends
			Local Trend #1: Job Growth
			Local Trend #2: In- or Out-Migration
			Local Trend #3: Path of Progress
			Local Trend #4: New Construction
			How to Use the Seven Major Trends
		6  What Each of the Seven Trends Tells You About When to Buy, Hold, or Sell
			Timing Recommendations for Single-Family, Rental, and Second Homes
				TREND #1. INFLATION
				TREND #2. INTEREST RATES
				TREND #3. FLOW OF FUNDS
				TREND #4. JOB GROWTH
				TREND #5. MIGRATION
				TREND #6. PATH OF PROGRESS
				TREND #7. NEW CONSTRUCTION
			Timing Recommendations for Apartments
				TREND #1. INFLATION
				TREND #2. INTEREST RATES
				TREND #3. FLOW OF FUNDS
				TREND #4. JOB GROWTH
				TREND #5. MIGRATION
				TREND #6. PATH OF PROGRESS
				TREND #7. NEW CONSTRUCTION
			Timing Recommendations for Raw Land
				TREND ash;1. INFLATION
				TREND ash;2. INTEREST RATES
				TREND #3. FLOW OF FUNDS
				TREND #4. JOB GROWTH
				TREND #5. MIGRATION
				TREND #6. PATH OF PROGRESS
				TREND #7. NEW CONSTRUCTION
			Timing Recommendations for Office Property
				TREND #1. INFLATION
				TREND #2. INTEREST RATES
				TREND #3. FLOW OF FUNDS
				TREND #4. JOB GROWTH
				TREND #5. MIGRATION
				TREND #6. PATH OF PROGRESS
				TREND #7. NEW CONSTRUCTION
			Timing Recommendations for Retail
				TREND #1. INFLATION
				TREND #2. INTEREST RATES
				TREND #3. FLOW OF FUNDS
				TREND #4. JOB GROWTH
				TREND #5. MIGRATION
				TREND #6. PATH OF PROGRESS
				TREND #7. NEW CONSTRUCTION
			Timing Recommendations for Hospitality—Hotels and Motels
				TREND #1. INFLATION
				TREND #2. INTEREST RATES
				TREND #3. FLOW OF FUNDS
				TREND #4. JOB GROWTH
				TREND #5. MIGRATION
				TREND #6. PATH OF PROGRESS
				TREND #7. NEW CONSTRUCTION
			Trends in Action
			The Wildcard—Exogenous Shocks
		7  Using the Seven Trends in the Real World
			Understanding Trend Interaction
			Looking for Anecdotal Evidence
			Pulling It All Together
			A Real-World Example: Radisson Hotel DFW South, Dallas 2002
				STEP #1. LOOK AT THE SEVEN TRENDS
				STEP #2. CONSIDER EXOGENOUS EVENTS
				STEP #3. ASSESS BARRIERS TO ENTRY
				STEP #4. REVIEW ANECDOTAL EVIDENCE
				STEP #5. PULL IT ALL TOGETHER
			Rely on Logic
			And Then There's Hindsight
	Part Three  When to Buy
		8  Buying Basics
			Think Through Where Your Property Is in the Timing Cycle
			Determine Your Purchase Goals
			Finding Your Property: How to Effectively Use a Real Estate Broker
			Get to Know Your Market: Getting the Word Out
			Appraisers, Market Studies, and Local Economic Indicators
			How to Find a Lender
			The Dangers of Leverage
			Assuming Existing Financing—The Good, the Bad, and the Ugly
			New First Mortgages
			Understanding Financing
			Seller Financing
			Mezzanine Financing
			What Lenders Expect of Borrowers
			Picking Your Lawyer
			Reading the Sales Agreement
			Title Companies, Escrows, and Closing
			Due Diligence—A Critical Phase
			Renegotiating Your Deal After Due Diligence
			Structuring a Property Management Plan
			Timing and NOI Projections
			Take It to the Board of Directors
		9  Buy When There's Blood in the Streets: The Contrarian Timing Strategy
			Why Would Anyone Sell a 20-Year-Old a $1.6 Million Apartment Complex with Zero Down Payment?
			What Is Contrarian Timing?
			Do Markets Always Rebound?
			Five Principles to Live by When Making Contrarian Investments
			Risks and Problems with the Contrarian Investment Approach
			Bottom-Line Benefits
		10  Buy When Prices Are Going Up: The Momentum Timing Strategy
			A "Path of Progress" Momentum Play
			What Is Momentum Buying?
			Five Important Indicators of Upward Momentum
			Buy to Sell
			How Momentum Buying Is Different from Contrarian Buying
			Four Risks and Problems with Momentum Timing
			How to Spot the End of Upward Momentum
			Bottom-Line Benefits of Momentum Buying
	Part Four  How to Hold
		11  Increase the Value of Your Property: Six Powerful Techniques
			"Holding" a Property Often Means "Get to Work"
			Turning a Big Lemon into Lemonade
			Problems Were Not in Short Supply
				PROBLEMS
				OUTCOME
			Building on Positives
			Every Transaction Needs a Management Action Plan
			Your MAP Needs an Alternative Bonus Plan
			MAP Opportunity #1: Make Cosmetic Improvements and Catch Up on Deferred Maintenance
			MAP Opportunity #2: Undertake Major Rehabilitation
			MAP Opportunity #3: Improve the Economic Uses of the Property
			MAP Opportunity #4: Improve Operational Efficiency
			MAP Opportunity #5: Improve Marketing
			MAP Opportunity #6: Financial Engineering
			Timing Your Improvement Plans
		12  Hold Most Properties for One Up Cycle
			Selling Your Fruit Tree at Peak Harvest Time
			So, How Long Is a Cycle Again?
			Why You Hold for One Up Cycle
			The Impact of Deferred Maintenance on Your Plan
			Financing Affects Holding Time
			One Cycle Allows Time for Property Improvements
			Why You Sometimes Hold for Less than a Full Up Cycle
				IF YOU SEE A REAL DOWNSIDE COMING
				IF YOU'VE ACHIEVED YOUR MAJOR GOALS
				JUDICIARY CENTER: A SHORT HOLD THAT NETTED MAXIMUM VALUE
			When You Miss the Window, Waiting Out Another Cycle Can Cost a Lot
		13  Hold Some Properties Longer Than One Cycle
			Willowtree, the Cash Cow
			Hall Office Park: A Long-Term Plan
			Reasons to Hold for More Than One Cycle
			Quality of Construction Is Important
			Location Is Critical
			How Financing Figures into Holding for More Than One Cycle
	Part Five  When to Sell
		14  Selling Basics
			Think Through Your Property's Position in the Timing Cycle
			Determine Your Goals
			The Value of Real Estate Brokers
				NEGOTIATE THE BROKERAGE FEE
				DETERMINE A MARKETING PLAN
			Look for 1031 Exchange Buyers, if Possible
			Methods of Selling
				THE "MULTIPLE LISTING" APPROACH
				THE "AUCTION" METHOD
				PRICING PROPERTIES VS. OPEN-ENDED BIDS
			Consider the Buyer's Financing Needs
			Before You Sell, Order Reports on Your Property
			Marketing and Maximizing Exposure
			Analyzing Letters of Intent
			The Legal Process
				PICKING YOUR LAWYER
				ENTERING INTO THE SALES AGREEMENT
				NEGOTIATING THE CONTRACT
				DEFENDING YOUR GOAL
				SURVIVING DUE DILIGENCE—A GENERAL POINT
				RETRADING THE DEAL
				CLOSING THE TRANSACTION
			Income Taxes Relating to Property Sales
			1031 Exchanges
			Three Bottom-Line Reflections on Selling
			It's Better to Be Too Early Than Too Late
		15  When the Pay Window Is Open, Sell: The "Sell When Everyone Wants It" Strategy
			Gates of Arlington: The Pay Window Was Open ...
				A LITTLE PUBLICITY MAKES A BIG DIFFERENCE
				BUMPS IN THE ROAD
				SOMETIMES YOU WIN, SOMETIMES YOU LOSE
			Selling Doesn't Just Happen
			It's Hard to Sell When Everything's Right—But Just Do It!
			Four Ways to Know It's a Seller's Market
			Create a Bidding War
			Timing Is Critical: Don't Miss Your Window
		16  When Positive Momentum Is at Risk, Get Out: The "Sell Before Prices Go Down Again" Strategy
			What Is Positive Momentum?
			Catching the Wave
			What Does It Mean When We Say Positive Momentum Is "at Risk"?
			Four Ways to Know Positive Momentum Is at Risk
	Part Six  Putting Theory into Practice
		17  Is Real Estate the Next Bubble?
			Applying the Seven Trends
			The Three National Trends
				NATIONAL TREND #1: INFLATION
				NATIONAL TREND #2: INTEREST RATES
				NATIONAL TREND #3: FLOW OF FUNDS
			The Four Local Trends
				LOCAL TREND #1: JOB GROWTH
				LOCAL TRENDS #2 AND #3: IN-OR OUT-IMGRATION AND PATH OF PROGRESS
				LOCAL TREND #4: NEW CONSTRUCTION
			Taking Stock of the Seven Trends
			Anecdotal and Exogenous Events
			Remember: Real Estate Lags Behind National Economic Cycles
			Has There Been a Paradigm Shift?
			Is the Real Estate Bubble About to Burst?
			What Should Investors Do?
		18  Real Estate Timing: More Art Than Science
			Science Can Help but It's No Panacea
			Art Is Understanding the Changing Relationships Among the Seven Trends
			Perspective and Humility
	Index
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