Apr
17

Countercyclical Investments: Real Estate and the slump in the housing market ( Part 3)

Posted under Business, Investing by Roman

A wise man once told me that there are only two ways of making money buy low and sell high, this maybe the simplest concept in business. It is a concept that we should in theory follow, but all too often we get caught up in our own emotions. All too often we let our emotions make our decisions. Emotions and the heat of the moment blinds us and lets opportunities pass us by. We are either to afraid to follow through or too busy chasing something else. The “quick buck” drives these emotions. A few years ago everyone was buying houses 2, 3, 4 of them at inflated prices. No one cared about the artificial inflation that they were causing in the market. All these people were concerned with was the profit of the “quick buck”. Five years ago this seemed to be a solid strategy buy, hold, sell when the prices go up and make a profit.
This strategy now a day’s brings fear into people minds. All they think about is that the housing market is down. I can’t make a profit and it is only going to get worse. All I can say is that this take is true. The house market is in a very bad place. There are more sellers than buyers. These sellers drop the price of the property that they are selling more and more; add to that all the foreclosures and the market is almost flooded. The price of a house has dropped 20% over the last few years. Foreclosures JUMPED 57% in March according to cnn.com. All this creates a prefect buyers market.
Why would I invest in real estate? Simple there are only 2 ways of making money buy low or sell high. You will be buying low. This is not a strategy that is quick; it’s designed for the long term. Houses, co-ops and other types of property can be bought for EXTREME DISCOUNTS. Go to a foreclosure auction and you will see property being sold for less than the market value. Yes there is a risk, yes you can lose money but if you do your research (as you should do before any investment) you will reduce that risk.
For example, there is foreclosed property in an area and there is a pending approval for land development, (high rises, stores and all the good stuff), the asking price for the property is 250,000, Average price for a property is 500,000. If the developments project goes through the housing market in that area will improve. Simple research can generate a profit in the long run (about 5 years).
Please do not create more risk than you can handle, that is one of the reasons that so many people are foreclosing the properties that they bought. As an investment the property was too much of a financial burden for them.
If you look at the housing market in the long run, it follows a constant cycle. It goes up and down, all you have to do is get in on one of the downs and sell somewhere that you feel comfortable.Top of Form