Real Estate Investment Strategies in Troubled Times – Should I buy or Wait?
Economic depression of 1929-1932 created a huge wealth shift. There were millionaires who became paupers and there were entrepreneurs who started with nothing and became multi-millionaires.
During periods of stability status co is maintained. Fortunes are made and lost during times of financial crises.
There are people who freeze with fear and let events over take them. Their non-action is the cause of their down fall. On the other hand there are real estate investors who dare and take action during an economic depression. It is not that these people do not have fear but they learn to act in spite of their fear because they have they are mentally prepared to meet the challenge head on.
During the financial crisis from 2008 – 2012 many astute investors who had the courage to act against the market and bought properties made a killing when the property market started to rise again.
Although US economy is stabilizing there is problem China and developing economies with exception of India. Europe has its own set of problems with Greece and migrant crisis. This can put credit squeeze for New Zealand and Australia.
It is the finances that pump life into real estate and businesses. If the financial system is damaged then there will be little or no money forth coming to fund real estate or new businesses.
The real estate investing strategies will have to change drastically if one is to remain successful. Low interests may not last forever. If you are investing in the hope of capital gain with low yield properties then you are in for trouble. There is likely to be no capital gain during the next couple of years. You will just baby sit a negatively geared property out of your pocket for years and miss out on several buying opportunities that are likely to come up during the next year.
In this market buy properties that will give you instant equity by buying below value. This is better than waiting for capital gain that may not happen for next 3 to 5 years.
Also buy cash flow positive properties that not only pay the mortgage but also leave some money in your pocket. The yields are steadily going up and interest rates coming down. If you have patience cash flow positive properties will once again be a reality sooner than later. These two strategies will give you cushion if there is inflation and interest rates go up. Don’t rush there will be plenty of time to buy.
Please have a very hard look at the quality of your tenants and the leases. In this economic depression we are in a shrinking economy and even some of the blue chip tenants will go under.
Beware of tenants who are in the financial sector or related to real estate. Please keep enough cash on hand so as not to get into trouble. Try and increase your equity to loan ratio to less than 60%. When the markets start to move up then you can start reducing your loan to value ration by buying aggressively.
As most of us do not have enough knowledge about the internal health of our banks it is prudent to keep your money in a bank from which you have borrowed money. Your borrowings must always be higher than the money you have in bank. This will be a great security if the bank goes belly up. The receiver will have to offset your money with that of your borrowings. If you have borrowings from more than one bank then spread your money accordingly.
These are interesting times for those who are willing to take action with cautious optimism. You can change your future for ever during this period of wealth shift.