If you enjoy speculating in real estate, you will like “Making Hard Cash in a Soft Real Estate Market” by Wendy Patton and Justin Ryan. The reason this is a book for speculators is the authors suggest real estate buyers should purchase in “emerging markets” rather than in their hometowns, as most realty investors do.
The authors explain how to find the next high-growth emerging markets for real estate. Their theory of market timing sounds good. But the implementation leaves much to be desired because they fail to give actual examples of how they applied their theories and earned big profits.
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Instead, Patton and Ryan write in their confusing book about the increasing real estate demand from baby boomers, echo boomers and immigrants. The book is filled with interesting facts about these three primary sources of home buyers, but there is little specific detail about how to use this information for investment profits.
In the early parts of the book, the authors emphasize investing in new or “like new” houses, which are less than five years old. They write about how most renters want houses in up-to-date condition rather than older-style houses which usually incur more maintenance than newer houses.
But toward the book’s conclusion, Patton and Ryan shift toward speculation, such as buying preconstruction condominiums before a development opens to public sales. They even lead tours to so-called emerging markets. According to their Web site, their current favorite emerging market is Biloxi, Miss.
Although the authors write about a recent bargain-priced foreclosure purchase made in their home state of Michigan, they favor buying property out of state and hiring property managers who charge fees around 10 percent of gross rents. They then caution owners to manage their professional manager.
“Begin with the end result in mind. Decide on your exit strategy at the time you buy, because it affects the type of property you will buy and, possibly, how you will buy it,” the authors caution. Then they explain how to decide if it’s time to buy, by analyzing the sales volume of existing homes, new construction permits, months supply of houses and condominiums, mortgage defaults and foreclosures, and days on market for sale.
“When several indicators point toward buying, this is the signal that a market has started to turn. Be countercyclical and start buying,” Patton and Ryan advise. However, they don’t explain how to effectively do this if your investment properties are in one area but you live far away in another community.
Although the authors mention the “burst bubble” cities of Miami, Phoenix and Las Vegas where speculators drove up house and condominium prices and then tried to sell out almost all at once, they don’t explain how to avoid such situations. “Real estate investors make money in every single market in the country, whether the market is growing or declining. You just have to buy right,” the authors caution.
This new book is filled with investment strategies, such as lease-options, land contracts for deed, “subject to” purchases and foreclosures. But the authors don’t seem to mind rental-property negative cash flows, as they caution buyers to have at least three to six months of cash reserves.
Toward the book’s conclusion, Patton and Ryan shift toward speculation on new construction, apparently condominiums rather than new single-family houses recommended in the early chapters. They claim new construction investing is “an ideal soft-market strategy.”
Then the authors proceed to project a 12 percent rate of appreciation for a first year rental and a 15 percent appreciation rate for the second year. In a soft market, that doesn’t make much sense.
Chapter topics include “How Real Estate Investing Must Change When the Market Shifts from Hot to Cool”; “The Science of Risk Management for the Real Estate Investor”; “Find the Next High Growth Emerging Markets”; “Time the Market”; “The Power of Lease-Options in a Soft Market”; “Invest in Foreclosures and Other Hidden Bargains”; “Buy Unsold, Discounted Inventory from Builders in Distressed Markets”; “The Way to Buy and Hold in a Down Market”; and “Exit Strategies.”
This book is difficult to evaluate because its early chapters preach conservative investing but the later chapters favor speculating by projecting high appreciation rates and substantial monthly negative cash flows. Getting excited about a realty investment book that recommends long-distance speculating in unfamiliar locations is very difficult. On my scale of one to 10, this disappointing book rates a seven.
“Making Hard Cash in a Soft Real Estate Market,” by Wendy Patton and Justin Ryan (John Wiley and Sons, Hoboken, N.J.), 2007, $24.95, 221 pages; available in stock or by special order at local bookstores, public libraries and www.Amazon.com.
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