Real Estate Investor: Pounce When the Time Is Right

Millionaire Lesson No. 3

Identify trends and be patient, even if it means waiting a decade to make an investment.

Make a million in real estate?

Today? You must be kidding. But where others see a housing bust, Robert Norton sees opportunity. He sold his home for a profit of nearly $2 million last year, and he sees many similarities between today’s Los Angeles housing market, where prices have dropped by about 20% over the past year, and the market when he bought that house in 1997.

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Norton, 52, spent 25 years as an entertainment lawyer, working first for Jim Henson’s company (of Muppet fame) and then Mattel. But real estate was his passion.

He’d been buying and selling inexpensive properties since the early 1980s, and watching the housing market carefully for a big investment. He pounced when he saw the price for a six-bedroom house in fashionable Bel Air drop from $1.1 million to well under $1 million. So he offered even less ($750,000), closed the deal in three days and moved in.

Then he waited, knowing that real estate cycles in the area tend to last seven to ten years. When he sensed a downturn coming in 2007, he sold the house for more than $2.8 million. Says Norton, "It’s a matter of sitting and waiting and having the flexibility to be patient."

Norton quit his job and now focuses full-time on real estate. He didn’t invest all his profits right away, he says, "because prices can still come down." Now he owns a smaller home for himself in Long Beach, a vacation home in Palm Springs and three houses that he rents out while he prowls the market for attractive properties at good prices.

Aware that today’s downturn may last a long time, he’s careful to run the numbers before buying a rental property. "I won’t buy a rental property that does not have a positive cash flow, and that includes accounting for taxes, insurance and maintenance as well as the mortgage," he says. "It has to generate as good a return on my money as other types of investments. Then any future appreciation is gravy."

Norton generally puts down 20% to avoid private mortgage insurance and to qualify for the best loan rate. But he doesn’t put down any more. That way, he leverages his money. Norton is also careful to diversify his investments. For instance, the retirement accounts he built up while he was a lawyer remain untouched.

His advice to real estate investors: "The house should appeal to a broad spectrum of future buyers, and not just be something you like because it’s uniquely your taste. And in a down market, the old adage ‘Location, location, location’ is more important than ever."

EIGHT MILLIONAIRE PROFILES

1. The Video That Took on a Life of Its Own

2. Know When to Make the Call

3. Pounce When the Time Is Right

4. It Started Over Cocktails

5. A Thirty-Year Plan to Make a Mil

6. Breaking With Family Tradition

7. Accumulating A Fortune on $11 a Hour

8. Suddenly It Clicks