Through late 2004 and early 2005 there was a considerable spike in appreciation in many parts of the country. In some areas property was appreciating at rates estimated as high as 45%. This unprecedented increase caused many instant fortunes to be created in real estate making many people feel ‘unstoppable’ in real estate. When appreciation rates are that high you can buy almost any property and succeed as a real estate investor.   Unfortunately this success has lead to many people forgetting the true principals Real Estate Investing.
If I presented you with the following investment what would you think?
Purchase a property worth 200,000 for a price of 220,000 (10% more than market value) with a yearly negative cash flow of 5% ($10,000 over a 12 month period). This may sound like a terrible investment but had you purchased this deal in late 2004 in Orlando Florida and realized 44% appreciation you would have the property for 280,000. At this price you would regain the 220,000 purchase price and the 10,000 in negative cash flow and still profit $50,000 in only 12 months! When even a poor choice of investment such as this can generate boasts of a $50,000 profit, it’s easy for anyone to feel unstoppable in real estate. Had this same purchase been made under times of more realistic appreciation of only 7% the ‘investor’ would have suffered substantial losses. As appreciation rates begin to level off it will be much more important to make wise decisions in choosing real estate investment. For that reason I developed the Appreciation Opportunity System.
    44% Appreciation       7% Appreciation
Initial Value          200,000                       200,000
Value in 1 Yr         288,000                       214,000
Initial Cost: Â Â Â Â Â Â Â Â Â Â -220,000 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -220,000
Cost to Hold          -10,000                        -10,000
Gain/Loss` Â Â Â Â Â Â Â Â Â Â Â +58,000 Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â -16,000
Even the worst real estate decision can have a positive outcome when appreciation rates are this high. Many people who succeeded blindly under these circumstances will fail as appreciation rates return to normal levels.
Real Estate investment remains a very powerful way to build wealth. As the market begins to level off many of the fly by night investors will move on to other things. This will bring balance back to the market reducing the competition for investment property making it easier to find a good deal. Real Estate fortunes are not made overnight, you should consider a twenty year plan for real estate investment.