Forecasting for real estate wealth

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FORECASTING FOR
REAL ESTATE WEALTH
Strategies for Outperforming
Any Housing Market

ED ROSS

John Wiley & Sons, Inc.

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FORECASTING FOR
REAL ESTATE WEALTH

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FORECASTING FOR
REAL ESTATE WEALTH
Strategies for Outperforming
Any Housing Market

ED ROSS

John Wiley & Sons, Inc.

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∞
This book is printed on acid-free paper. 

C 2008 by Monarch Group LLC. All rights reserved.
Copyright 

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form
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Library of Congress Cataloging-in-Publication Data:
Ross, Ed, 1961–
Forecasting for real estate wealth : strategies for outperforming any
housing market / Ed Ross.
p. cm.
Includes index.
ISBN 978-0-470-27536-8 (pbk.)
1. Real estate investment—United States. 2. Real estate business—United States—Forecasting.
I. Title.
HD255.R67 2008

332.63 240973–dc22
2007052399
Printed in the United States of America.
10

9 8 7 6 5 4 3 2 1

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To all real estate entrepreneurs who dare to join the
nation’s largest group of self-made millionaires and
to all homeowners who choose to take charge of the wealth
accumulation derived from homeownership.

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CONTENTS

xi

PREFACE

PART ONE
FOUR BIGGEST QUESTIONS
CHAPTER 1

What Should I Know about Market Cycles?

3

How Millionaires Make Their Fortunes from Forecast
Appreciation, 4
Make Money from a Slowdown, 5
Why Using a Forecast Is a Good Idea, 8
Why Not Using a Forecast Is a Bad Idea, 9
Integrating a Forecast into a Real Estate Strategy, 10
CHAPTER 2

What Should I Do over the Next Five Years?

15

When to Buy, Sell, or Hold, 15
Seasonal Forecasting Strategy, 20
Selling at the Peak and Buying at the Low, 26
What Is the Best Strategy for Investing Today? 28
Which Investment Strategy Is Easiest and Most Lucrative? 29
Should I Wait a Year or Two before Investing in the Market? 29
CHAPTER 3

How Do I Look Up My Forecast for Property
Appreciation in a Specific Neighborhood?

33

Capitalize on a Slow Real Estate Cycle, 34
Use Forecasts to Be Competitive in Property Investing, 35
Primary Forecast Variables and Resulting Values, 36
Calculate the Next Seven Years, 40
CHAPTER 4

How Can I Identify the Property That Will Make Me
the Most Money?

47

Homeownership versus Renting, 48
Earn Back a Down Payment Quickly, 52

vii
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viii

CONTENTS
Select the Property with the Greatest Appreciation and Lowest
Vacancy, 54
Amenities in Investment Properties, 61
Combining Successful Purchase Negotiation with Appreciation, 62
Why the Real Estate Cycle Influences Each Property Differently, 63
Matching Buying Strategy to Metro Location, 66

PART TWO
METHODS AND SYSTEMS FOR BUYING,
SELLING, AND FINANCING
CHAPTER 5

Four Methods to Sell in a Declining Forecast Cycle

71

Challenges of Selling in a Slow Cycle, 72
Prevent Seller’s Remorse by Using a Forecast, 72
Four Selling Methods to Beat Any Cycle, 73
CHAPTER 6

Four Financing Resources When Lenders Are
Reluctant to Lend

85

How Do Traditional Lenders Evaluate? 86
Alternative Financing Methods, 91
Seller Financing, 93
Realtor Contribution, 100
Renter Contribution, 100
Investor Financing, 100
CHAPTER 7

Six Ways to Maximize Wealth Accumulation

105

Buying Expensive or Well-Known Is Not Always Better, 105
Buying Local versus Buying Cross-Country, 106
Select the Best Property Management Firm, 107
Partial Property Management Outsourcing, 108
Select the Best Investment Area, 111
Understand Remote Property Valuations, 114
CHAPTER 8

Key Financial Wealth Evaluators

117

Calculate Your True Rate of Return, 117

Always Measure Your Cash-on-Cash Return, 121
View Your Capitalization Rate with Caution, 122
Critical Financial Evaluators for the Next Five Years, 123

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Contents

ix

PART THREE
STRATEGIES FOR INVESTMENT AND WEALTH
CHAPTER 9

The Best Investing Strategy for Wealth in a Difficult Market 127
Secret Preventers of Real Estate Wealth, 128
Things to Know about Real Estate Investing that Others Do Not

Tell You, 129
The Most Productive Wealth Accumulation Strategy for the
Next Five Years, 131

CHAPTER 10

Investing Strategies for Wealth in a Robust Market

135

Build Your Financial Statements in Advance of Acceleration, 135
Exiting Short-Term Investments before Seasonal Change, 136
Using a Short-Term Investment Strategy, 137
Using a Long-Term Passive Cash Flow Investing Strategy, 138
Leveraging Assets for Liquidity, 138
CHAPTER 11

Starting from Zero: Techniques for Buying
Preforeclosure and Other Strategies

141

Active versus Passive Investing, 141
“Subject-To” Active Investing, 145
Tactics and Procedures, 146

PART FOUR
BUILDING A BUSINESS
CHAPTER 12

Legal Entity Protection

151

Formation of a Layered Plan, 152
Administration of the Land Trust and Limited Liability
Company, 154
Additional Layers, 156
CHAPTER 13

Financial Calculations Paramount to Success

157

Annual Property Operating Data Sheet, 157
Annual Property Standard Variables, 158
APOD Indicators, 160
Five-Year Proforma, 162
CHAPTER 14

The Ultimate Wealth System: Three Years to a Million

167

Determine Financial Position, 168
Define Acquisition Guidelines, 175

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x

CONTENTS
Choose Buying Strategies, 175
Create a Plan, 176
Buying Area Analysis, 179
Profitable Buying Plan, 182

PART FIVE
RESOURCES
CHAPTER 15

Top 10 Recommended Cities in the United States
with Appreciation

187

Top 10 U.S. Cities, 188

APPENDIX A

Metro Forecast 15-Year History by State

197

APPENDIX B

Metro Alphabetical Forecast

211

APPENDIX C

Free Edsforecast.com Membership

229
231

INDEX

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PREFACE

You can achieve million-dollar returns in the real estate market with ease if you understand how to outperform the real estate cycle. Real estate entrepreneurs achieve
millionaire status from positive cash flow returns and equity appreciation. Equity
appreciation is tightly integrated with current economic conditions and the future
prediction of real estate values. Integrating your investing strategy with a forecast
provides you with a strategic winning advantage; it gives you the means to capitalize
on any market condition and produce million-dollar results.
The vast majority of real estate books describe how owning real estate for the
long term will produce positive financial results. Dozens—if not hundreds—of techniques exist for making money in real estate. In fact, techniques for financial gain
exist for almost any form of investing (real estate, stocks, mutual funds). Real estate
is the only form of investment that rarely has devoted subject matter to market
trending or forecasting. Entire sections of libraries and bookstores are dedicated toward trending stocks and liquid cash. Why not real estate forecasting? The answer is
simple: Real estate moves slower so investors tend to forget how important trending
really is until a real estate market slowdown. Then everyone wants to understand
the trend.
Great news! Since real estate ups and downs move slowly over time, the trend
is easier to predict and measure, compared with financial market investments; so
all investors of real estate owe it to themselves to become knowledgeable in the
short- and long-term trends of real estate investment. The forecast resource should
become the primary decision criterion tool for seasoned investors, especially during
a market slowdown.
The sad reality is that, until now, the measurement of trends in real estate was
reserved for individuals or companies with large financial resources to accommodate

in-house forecasting staff or the hiring of consultative support. Most investors simply
would read local newspapers or consult other media to make a best guess at local
markets. But using a best-guess method to measure future appreciation is always
risky and often catastrophic to the holder, especially when appreciation typically
accounts for over 50 percent of investor profit. The 2006 real estate slowdown resulted in many investors finding themselves locked into properties that could not
sell for the purchase price in 2007. The dramatic increases in foreclosure property
in 2007 are proof that many investors were unable to liquidate their properties in
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PREFACE

a timely manner for prices that would prevent bank default. Those investors would
have greatly benefited from a real estate forecast.
In 2006, the U.S. real estate market entered a cyclical change that resulted in

flat or declining values for many properties. More people are demanding answers on
how to handle these cycles. First-time buyers want an easy answer about whether
renting is better than buying over the next few years. Everyone wants to know if a
particular property is a good investment or a bad one. How can you tell whether the
property is forecast to go up or go down over time? Which method of investing is
best to follow to achieve faster million-dollar returns during the present real estate
cycle? Why do some people have the answers, while others are best guessing? What
is the exact financial benefit or disadvantage between prospective purchases? How
can buyers avoid being locked into properties that will be difficult to sell? How
can people sell property faster? Where are the best U.S. cities for investing? Which
properties should you purchase for maximum investment returns? How do you time
the market and make the most out of it?
Anyone who is a homeowner is also a real estate investor. We all want to know
how our home stacks up against the rest of the market. It sounds simple enough, but
it is not so easy to determine which property yields the most prosperity, is easiest
to liquidate in a slower real estate market cycle, and will provide the most reward
for long-term personal satisfaction. Is it better to purchase the smallest home or the
largest home on a block? The larger price tag with a more expensive loan, or the
smaller price tag with a less expensive loan? A home in the suburbs or in an urban
center? What about rental income property investing? Is it best to own a duplex
or a triplex? Is it better to purchase the property with fast appreciation or with
long-term cash flow? Which metropolitan areas, cities, and zip codes will yield the
greatest financial returns over the next couple of years? How can you put all this
together into a plan to become a millionaire without having to use a lot of your own
capital?
The appreciation of real estate typically accounts for more the 50 percent of
the total profit earned with any property investment. Over 62,000,000 homes are
currently owned in the United States, and the National Association of Realtors
expects that over 6,400,000 residential purchases will take place in 2008. The new
real estate cycle is forcing all of the homeowners, investors, and prospective buyers

out there to be cautious before buying or selling. Whether you are a homeowner,
part-time investor, seasoned investor, or novice interested in building wealth in real
estate, you can reduce risk exposure and gain peace of mind by learning the benefits
of real estate forecasting, and that is why you should read this book.
Forecasting for Real Estate Wealth is a sophisticated resource to use and reuse
each time you want to stack up a particular property against the rest of the real
estate market and the present industry cycle. It is filled with detailed information on
what makes a property a wise investment, includes useful concrete examples, and

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Preface

xiii

provides financial illustrations and tools for analyzing and comparing properties
that eliminate the best-guess or assumption techniques used by most real estate

investors. With this book, any investor will be armed with a meaningful resource to
outperform the most advanced real estate firm or entrepreneur. Why? It combines
forecasting, financial calculations, and practical written real estate communications
to produce sound strategy for accurate investing decisions. Successful investors can
integrate a property forecast into their current real estate investing techniques, or
use the step-by-step methods for successful million-dollar returns outlined in this
book. Read on, and let’s get started!

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FORECASTING FOR
REAL ESTATE WEALTH

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PART

ONE

Four Biggest Questions

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CHAPTER

1

What Should I Know about
Market Cycles?

Million-dollar returns in real estate are realized through equity gains and cash
flow over time. Investors can realize faster returns under any market condition
if they learn to manage and calculate the time lines that produce equity and
cash flow gains.
The rewards from sound real estate investing are tremendous. Real
property is the single most significant source for creating individual wealth in

the United States. Perhaps one of the most important reasons for this is that
investors make their real estate wealth while sleeping; property holders see
incremental asset growth in value over time without effort. This is referred
to as appreciation in your asset, and it is the most compelling reason to invest
in real property.
Buyers of real estate often expect both short-term and long-term appreciation without any sound technical or economical guidance. What is
amazing is that the majority of investors fail to calculate one of the largest
wealth builders—appreciation—before executing a contract to buy a specific
property. This, in itself, is not catastrophic since property almost always appreciates over the long run. But during an economical real estate slowdown,
many regions may experience years of negligible appreciation and possibly
even declines in values. Wouldn’t it be useful to project how much time
the appreciation will take, and the amount of money you’ll make on each
property?
Even when putting a bet on a table in Las Vegas, we all have expectations
of how much return we will receive if we win. It is the same with any state
lottery. Each store posts how much is expected to be distributed to the
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FOUR BIGGEST QUESTIONS

winner. There is no guarantee that you will be the winner, but at least you
know what to expect if you do win.
Now, let’s apply this to purchasing property. You may have already
bought your first property. Did you have an exact number for appreciation
over the first five years of ownership? Estimating your appreciable real estate
returns over the short and long term does not need to be a cumbersome or
difficult task. In fact, once you are armed with a few tools, it can be as simple
as calculating your lotto returns.
Taking the time to understand the dynamics of current economic conditions and applying the results before making an offer to purchase a property
will yield you greater financial returns. All forms of financial investing (e.g.,
stocks, bonds, time deposits) include a component for estimating the expected gain over time. In real estate, appreciation is called passive income
(the income you earn over time with or without your involvement). Measuring your expected returns should be a fundamental part of your investing
strategy.

How Millionaires Make Their Fortunes from
Forecast Appreciation
When you put a hundred dollars in a savings account and it is earning interest annually, you are collecting income on your investment. In real property investing, there are two income sources: first, the appreciation return
rate; second, in income-producing rental properties, the cash flow from the
renting of the property. Unsurprisingly, most real estate millionaires in the
United States have acquired their wealth from appreciation returns.
Making money while sleeping is what most Americans dream of. Statistics prove that investing in real estate not only is a way to reach that goal, it
is a reality for most of the self-made millionaires in the United States. The
combination of passive investing and forecasting is a sure way to achieve
financial goals and meet expectations. To calculate your expected future

earnings, it is necessary to forecast future appreciation.
The forecast of real property tends to move more gradually than traditional money investments. Stock investment prices can swing several percentage points in a given hour, while home pricing often takes months or
years to accomplish a similar swing. Real property pricing moves slowly because it is not a liquid asset (it is not easily and quickly traded or cashed out);

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What should I Know about Market Cycles?

5

a property sale can take weeks or months to execute and finalize. Meanwhile,
sellers and buyers can change their direction or decision prior to contract
closing, which can benefit or impair the investor; liquidating an asset can
be difficult in a slow real estate cycle, preventing the investor from using
earned appreciation on one investment toward a new investment. Shortterm property investing is more challenging during a slow real estate cycle.
However, when you account for the slower cycle before your purchase—and
this is where the forecast comes in—you are protecting yourself from the

slowdown with an investment plan that can be executed during any cyclical
period.
A benefit of the slower real estate cycle is that your long-term investment is more secure: history has proven that, over time, equity returns and
financial gains will rise. From 1995 to 2000, the vast majority of metropolitan areas appreciated 100 percent to 200 percent (see Table 1.1 for the top
50 list). Purchasers of a home in any one of these metropolitan areas for
a price of $250,000 in 1995 would have made a minimum of $375,000 in
additional equity over the following 10-year period. What a tremendous way
to get rich fast! If you had one residence and two rental homes in 1995 in
any one of these metro areas, you would have entered the elite group of
American millionaires; it can be that easy.
Despite what all the gurus of get-rich-quick schemes tell you, real estate
is a long-term wealth builder. If you are looking for a one-year plan to get
rich quick and are a high-risk taker, then liquid assets like stocks will be
far more productive. The proof is in the number of millionaires created
by wealth building compared with the number who get rich in real estate
schemes.
A colleague of mine, who is also an economics professor, did a survey of
over 100 millionaires. More than 90 percent of them made their wealth from
real estate, and all of them did it in a minimum of 3 years; they achieved
financial freedom in about a 7-year period. Real estate is one of the most
predictable and stable long-term financial markets out there.

Make Money from a Slowdown
In 2006, the United States entered a cyclical real estate slowdown that will
last for many years. As an author and real estate entrepreneur, I am all
too familiar with what slowdowns mean to most property owners. Our last

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FOUR BIGGEST QUESTIONS
TABLE 1.1

10-Year
Appreciation
(%)
287.25
277.24
273.16
268.32
265.17
264.91
258.46
253.73
252.17
245.47

235.74
234.53
232.17
231.37
229.80
221.41
215.40
214.40
213.15
211.73
211.63
207.37
207.30
207.18
206.37
205.87
201.15
196.02
195.57
192.50
190.99
189.58
188.90
188.82
188.78
187.75
186.68
186.32

1995 to 2005 Average Mean Price Appreciation for Top 50 Metro Areas

Metropolitan Statistical Area
Cape Coral-Fort Myers, FL
Miami–Miami Beach–Kendall, FL Metropolitan Division
Fort Lauderdale–Pompano Beach–Deerfield Beach, FL
Metropolitan Division
Miami–Fort Lauderdale–Miami Beach, FL
Sarasota–Bradenton–Venice, FL
Naples–Marco Island, FL
San Diego–Carlsbad–San Marcos, CA
Vallejo–Fairfield, CA
Merced, CA
West Palm Beach–Boca Raton–Boynton Beach, FL
Metropolitan Division
Santa Rosa–Petaluma, CA
Santa Ana–Anaheim–Irvine, CA Metropolitan Division
Fresno, CA
Stockton, CA
Port St. Lucie–Fort Pierce, FL
Punta Gorda, FL
Chico, CA
Oakland–Fremont–Hayward, CA Metropolitan Division
Sacramento–Arden–Arcade–Roseville, CA
Riverside–San Bernardino–Ontario, CA
Deltona–Daytona Beach–Ormond Beach, FL
Panama City–Lynn Haven, FL
Bakersfield, CA
Los Angeles–Long Beach–Santa Ana, CA
Washington–Arlington–Alexandria, DC-VA-MD-WV Metropolitan
Division

Nassau–Suffolk, NY Metropolitan Division
Redding, CA
Los Angeles–Long Beach–Glendale, CA Metropolitan Division
Phoenix–Mesa–Scottsdale, AZ
Orlando–Kissimmee, FL
Washington–Arlington–Alexandria, DC-VA-MD-WV
San Francisco–Oakland–Fremont, CA
Baltimore–Towson, MD
Las Vegas–Paradise, NV
Tampa–St. Petersburg–Clearwater, FL
Visalia–Porterville, CA
New York–White Plains–Wayne, NY-NJ Metropolitan Division
Fort Walton Beach–Crestview–Destin, FL

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