The Real Estate Bubble May Burst, Don’t Be Afraid!
Everywhere you look these days you either hear or read an article about the bursting of the real estate bubble. Some investors become frightened as they tend to believe the burst of the bubble will have an impact on their bottom line. Well it might, but for the smart investor it won’t.
The type of investing that I have always believed in is flipping ugly houses, also known as rehabbing. If you are doing your homework and buying these properties at 60%-70% of after repair value you would have added enough cushion to soften the blow should the real estate bubble burst. Smart investor really do make their fortunes when they buy.
As a rehab investor your biggest enemy is time. If the market takes a bad turn and you have to wait 1-3 months longer to sell you property you should still be fine as you’ve added a cushion when you bought the property at a discount.
Another thing to remember is if the pool of buyers shrink then you have two very good advantages going for you.
1) The pool of renters, depending on your local economy, usually rises. You can rent properties, lease with option to buy, seller finance etc.
2) The market becomes a buyers market. As there are less buyers, sellers become more flexible with their terms. This allows you, as an investor, to pick up some really good deals.
So don’t be afraid if the real estate bubble bursts. Look for new opportunities, new revenue streams and new ways to take advantage while others hide.
Regards
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Yes, bubble bursting could be bad for the owner, but good for the investor.
Prices on property drop so investors can get a better deal than at real-estates’ peak “time.” However, this may not always hold true; One of the topics I have heard plenty about is “peak oil.” Are you familiar with this?
If you think about it, it seems logical. Prices for oil get really high because the point of extraction – of oil – reaches its mid-point. Meaning, half of the world’s oil has been depleted. I don’t know every exact detail about this topic, but the generalities of it should concern many people. When oil reaches its peak, it means gas prices will soar, which means cities that are far from farms, etc. will be losing a lot of value because noone is going to want to live there anymore. I think food in supermarkets, on average, travel 1500 miles before they reach their destination. If gas prices soar, shipping and freight companies may lose a lot of business, and so supermarkets will be less stocked, etc. Expanding on this idea using logical ideas will help many people understand the consequences of (extremely) high gas prices.
Alexander,
No, I am not familiar with “peak oil”. Real estate I believe allows for investors to play both sides of the fence. And for the consumer who has no alternatives to gas, in real estate if you as a consumer can’t buy a house you can rent.
Also, as an investor we invest in areas and houses that have the highest percentage of being bought by the largest demographic group in the area. For example. I recommend buying and selling in areas of a town where the majority of people live and the income is 60-90 percent of the median area income. This is your largest pool of homebuyers. This also is your largest pool of renters should the market peak and homes become unaffordable.
Market fluctutations do have a profound effect on real estate. We need to know them, understand the impact, and seize the opportunities no matter which side of the fence we are sitting on.
Regards
I agree the real estate may burst, but I would still like to purchase my aparment complex.
To some degree, I feel like real estate investing is so 1990s. I’m sure there is still a way to make money in it, but there are a few things about it I just don’t like. Specifically: (1) That you must use debt to finance the property, (2) That it seems like everyone is doing it, and (3) That everyone seems to think the market can keep going as it has.
I was in Las Vegas last week and learned that they are building 17 new high-rise towers. When I asked if that was a little excessive, the real estate salesman (we were attending a timeshare presentation) said that they are always at 97% occupancy and so they would be fine.
That seems like a little too much certainty in his eyes considering that the future is very uncertain. Like anything else, real estate is all about supply and demand. I’m not sure what the demand is for condominiums priced $300k-$1.5 million on the Las Vegas strip, but I am pretty confident that if they build too many they won’t be able to charge those prices forever.
Alexander, you may be right. I lived in Austin, TX during 2000 to 2003 and can tell you that being overly optimistic can be a real problem. When I was there they were building apartment complexes like crazy. Everywhere you looked a new one was under construction.
They thought high-tech companies were going to continue to hire new employees and people would flock to Austin. Then reality hit and the internet bubble burst. Occupancy rates dropped dramatically.
It has since gotten better, but the point is you have to be cautious. As small investors I don’t think we are in much trouble as we can react quicker to a changing market.
I think using debt to finance properties is needed in the beginning. If you play smart and re-invest in your business you can possible reach the point where you can do all cash deals.
Also your comment that everybody is doing in has some truth, but I think lots of people say they invest but actually don’t do much , if any. It has become quite “chic” to say ” I’m a real estate investor”. Having a web site and some business cards does not an investor make.
Regards