...And WHEN You Should Play It
Smart Profits Issue #501
By Marc Lichtenfeld, Senior Analyst, Smart Profits Report The Real Estate Market is one of the biggest investment topics being discussed at the moment... The news coming from the real estate sector has become so bad, and sentiment has become so negative, that I mentioned to my wife the other evening that perhaps we should look to capitalize on the housing market and or real estate market. Like many other folks, she'd rather hunker down and wait for things to calm down. I can't blame her. It's tough to have the courage to buy any kind of investment when prices are plummeting almost across the board. But I theorized that this particular situation was the proverbial "blood in the streets" opportunity. I have a hard time picturing things getting much worse. And yesterday, I ran into an acquaintance of mine, who's a lifelong expert in this field (he's in his sixties now) and has made a multimillion-dollar fortune from it. He confirmed my theory, but also provided some valuable other insights that I'm going to share with you today. Read on to find out what you should do with your money when it comes to the real estate market... There's Blood, But Is It In The Streets Yet? While discussing the current housing environment, my contact (let's call him "Mr. Big") said to me: "Marc, I've seen every kind of market, including 17% interest rates. It always bounces back." He then gave me the exact same words that I'd said to my wife the previous evening: "The time to buy is when there's blood in the streets." Okay. "But is there blood in the streets now?" I asked. He quickly responded, "No. I think it's going to get worse." But here's the interesting thing. Without knowing that I write for a newsletter myself, this guy stated: "You know, I see all these newsletter writers saying we're headed into a nasty recession or depression. They're all so negative, so I have to think we're near the bottom now. But we just have a little way to go yet." (Quick aside: This "blood in the streets" investing theory is just one way that the real pros make money in the stock market. We've talked about it in the Smart Profits Report before because it's an important concept. Xcelerated Profits Report subscribers know exactly what I'm talking about because this is the approach taken with two recent Xcelerated Profits Report recommendations - both in a battered sector, but both super-solid, top-ranked firms in little danger of going under and which will likely lead the recovery. For more details on how you can invest like a pro, check out this link. But back to my story... why should I listen to this guy about real estate and how can we apply the "blood in the streets" theory to this market? Mr. Big's One-Way Route To Real Estate Riches - An Essential Skill In A Market Stuffed With Bad News The reason I listen to Mr. Big is simple. While exuberant guys like Donald Trump like to brag about their real estate wealth, this guy didn't make and lose his money several times like him. He generated his wealth just once - and then grew the money into a nine-figure fortune. And that kind of approach is just what you need when an ugly market is trying to take wealth from you. Just this week, we've seen yet more awful real estate data. Mortgage research firm RealtyTrac said January got off to a miserable start, with a 57% surge in foreclosures, compared with January 2007. It was also an 8% rise over December's figures. The Pain Game Global Insight estimates that 1.4 million homes will go into foreclosure in 2008, helping to sink residential real estate values by $1.2 trillion. Yep... that's trillion. In addition, Kieran Quin, chairman and CEO of Column Financial, says there are three million subprime adjustable rate mortgages in the market. Two million of them will reset to higher rates this year. Those figures indicate there is more pain ahead - and Mr. Big's analysis seems right to me. The question is: What do we do about it? Your Real Estate "Percoset" I'm bottom-fishing in the real estate sector now, researching various markets, so I can determine where I'd like to pounce when the opportunity is right. And how will I know when it's time to put some money to work? One area I'll be keeping a close eye on is homebuilder stocks. Many are very cheap right now, and with stocks being forward-looking mechanisms, if these shares continue to rebound, it could signal that a bottom in real estate is near. However, if these stocks reverse course and head lower, we may have more time until the streets are crimson enough to look for the ultimate bargain. Hoping your longs go up and your shorts go down. Marc
Today's Smart Profits Notes:
- If you're looking for which way real estate might go next, just listen to what one of the biggest players in the sector says - Toll Brothers (NYSE: TOL) CEO Robert Toll: "The housing market remains very weak in most areas. Based on current traffic and deposits, we are not yet seeing much light at the end of the tunnel."
- That assertion was confirmed in Toll's recent quarterly earnings report, with the company absorbing a $96 million loss on revenues that sank 23%, as 28% of its customers canceled purchase contracts. The company also sucked up a $245.5 million write-down on poorly performing real estate developments. Had that not happened, the company would have actually earned $53.7 million. Toll also blamed "ceaseless talk of a recession" for compounding its woes.
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