How to see potential in a down market?

I have a question about the Michigan market. Obviously Michigan is experiencing its fair share of hardships right now and the economy there is really hurting. However, can one capitalize on such a market?

Based on the following assumptions…

-property values are very low right now
-foreclosure rates are very high
-lack of jobs with decent wages, terrible credit, etc.
I believe the above will work in favor of the multifamily investor

I also believe that if you were to invest in multi-family properties right now you’ll be able to acquire a property for cents on the dollar, thus being able to offer low rents to attract renters (not to mention the above list of facts to help fill properties) and support the expenses until MI’s economy recovers.

Please give your opinions on this situation and if such a market (or any extreme down market as MI) does hold potential for investors.

Most investors that own multi-family housing will hold the property in a slow or down market, simply because the folks that can’t afford to keep their sfh are moving into apartment rentals.
I have several renters that have good credit, other than the forcloser of their home, they lost their job and had to get a lower paying job. All of my buildings are full and i get calls everyday from people wanting to rent, cash flow is good these days.

So you’re obviously agreeing with what I have stated…?

Also, where are you from Sundown?

I’m also from Michigan…

Would you say the above statements you made are relevant to areas in Michigan such as Wayne County?

Also picking up cheap SFH will work too, you can rent now and sell them off later when the market picks up.

Do a google search on “SAM ZELL” This guy built a multi BILLION dollar real estate empire doing exactly what you’re talking about. His nick name is “The Grave Dancer” He buy’s property, mostly commercial, in areas where things have gotten so bad NO ONE wants to be there. He swoops in an grabs property for literally pennys on the dollar. Michigan is getting HAMMERED right now because U.S. car makers are losing market share at a rate NEVER before seen. IMO they will come back. It will be an ugly, slow, long climb out but they will do it. Or they’re all done, It’s that simple. In this kind of market you really need to buy these properties at rock bottom prices. The theory being that it is unknown how long the decline will last.

You are basically talking about contrarian investing. Doing the EXACT opposite of what the majority of people are doing. This is a very interesting business model. I have had a lot of success doing just that.
I have friends who bought pre-construction condo’s in Florida when everyone was doing it. They followed the herd, right to the slaughter house. I have other friends, who like “The Grave Dancer” are now waiting for things to really get bad down there, which WILL happen. When it does THEY will swoop in and buy from all the INVESTORS who paid WAY too much. The contrarian’s almost always make money because they buy true value, not potential appreciation.

I am aware of Sam Zell’s roots in Michigan but wasn’t aware of his style of investing. DO you have any links that I can read about his history in Michigan and the market conditions he was investing in? Like I said I have actually read about Sam Zell but the information I have found on him has never really been in depth.

Wayne County, yes, the downtown Detroit area, NO…

There is a book called Mavericks of Real Estate Investing. You can find it in most book stores. There is a whole chapter about Zell. I found the book to be very interesting.

Is this the book you’re takling about?

Yes it is.

While bearly a rumble can be heard in the residential lending arena (aside from the spikes of refis for ARM adjustments), the commercial sector has been posting consistent and meaningful gains for the last 4-5 quarters.

As another poster eluded to, when interest rates raise, affordability is effected and demand shifts from homeownership to apartment dwelling.


Scott Miller

Hey Garfield27 (or anyone who’s read the following book),

In the book you are refering to “Maverick Real Estate Investing” does the author somewhat go into detail of how Zell and the others started in the business, their successful techniques, and niches, or is it information based on the author’s own interpretation of the Mavericks who are profiled?

There is plenty of detail on how those guys started, troubles they ran into and lessons they learned. I enjoyed this book and recommend it. You will learn a number of REI principals and learn about how the big guys established themselves.

Yes. Real estate is like the stock market. Up and down. Buy low and sell high! Most investors I deal with are buying dicounted SFR in bulk. Some will sell off when the market goes up or keep it as rentals. Rentals will be hot in the near furture, due to the prices of homes. Projection shows that by 2050, we will have 8 Billion people in the world. Supply and demand. Most baby boomers will have to rent due to low income. Get the idea.

strictly interpretation

Contrarian is good but make sure you don’t ignore signs of doom. IMO, I think the US car makers are doomed. If the Michigan economy keeps depending on US auto makers as a major source of revenue, it’s definitely doomed. They need to do what states like Minnesota and Idaho are doing… attract entrepreneurs in high tech/bio tech industries.