4 Ways To Avoid The Housing Bubble

If there are two things that everyone knows about real estate investing, they are: "I don't have the money to get started" and "It's too risky". These people never end up investing. The risk argument usually has to do with the uncertainty of the market, or "the bubble". True investors do deals that are successful no matter what the market's mood. Those with money can buy and hold to ride out the inevitable swings; the rest of us can work quickly enough to ignore the bubble entirely.

The transaction costs of real estate exchanges are prohibitively expensive for most people to play real estate like they do the stock market. Instead, real estate investors make money by providing a service that is inherently valuable. There are four main ways to provide a valuable service and get out quickly enough to circumvent any market losses:

1. Buy and sell concurrently - by profiting from the spread between two long-term contracts - usually selling at an increased rate to someone who couldn't otherwise buy - as part of a terms deal. By including appropriate contingency clauses and keeping a buyers list, you can structure both contracts to begin at the same time, creating a steady flow of profit.
   
2. Sell a better product than you buy - rehab and "flip" an unattractive property. Aim to be out of the deal within 3 months, and if you do things right, it should never take more than 6 months from beginning to end. Build in a fairly large profit margin, and have a comfortable "hedge" margin for any disasters.
3. Help others avoid greater losses - by working around foreclosures. Get to know the people at foreclosure auctions and buy from lenders who want to get the properties off their books. Better yet, work with the defaulting homeowner before the lender even forecloses. Either way, you can get the property at a deep discount and resell it, with a profit margin that negates even the most catastrophic market.
4. Don't buy in the first place - negotiate and analyze as you would with any other deal, including the necessary contingency and assignment clauses in the contract, and then assign the purchase contract to another investor who will buy the property and carry out the deal by him/herself.