There has been speculation in the media recently about the fact that real estate will begin to fail and implode as it might
only handle so much growth.
In my humble opinion these theories do not
hold a lot of merit and here is why. First, understand that there are three basic things that undercut the validity of proverb
that there is a real estate bubble that all the people are operating in.
1. There is no international or national real estate sell
2. The real estate sell
doesnt explode or crash
3. The market has limited impact on the seasoned investor
The Real Estate "Market" is an overall view of micro markets nation wide.
When many people
talk about real estate economics they are usually referring to national or international statistics which in truth are made up of thousands on micro or local real estate markets. So even though you might find a North America wide trend there are still many, many markets which will be completely at odds with the overall numbers.
Real Estate Markets do not Crash.
We all remember October 19, 1987, known as Black Monday. The stock advertise lost 22% of its worth in one day - what investors call a crash. History points to times which real estate values have taken 22% hits in certain cities and in pockets within cities. However, no real estate advertise dropped 22% in one day, one week or even one month. In fact, the real estate crash of the late 1980s took several years to bottom out in most markets.
Keep in mind too the overall performance of the real estate sell
you are investing in. Those of you who have been active in the Edmonton market the last few years might think that the advertise is in a slump or downslide, when in reality the numbers they are recording are far above what the average of the last decade show.
The sell
has limited impact on the seasoned investor.
No matter if you are holding properties long term or doing a quick flip, the local market changes will not affect you in a major way if you are careful. For example if you are doing long term hold revenue properties there is little to no chance that the advertise will not increase over the term of your holding period. If you are on the other hand flipping properties then you will buy at a higher price in a strong sell
and will move the property quickly, or get a better price which will help you in higher holding costs in a softer sell
.
Now, just as a side note for those of you looking at holding properties for future worth considerations. If you are buying negative cash flow properties with the expectation of equity increase over 2-3 years then, in the words of a recent article that I read, SHAME ON YOU! If you are using investors capital to close these deals and the worth doesnt increase what are you going to do? What if the value decreases in that time? You are putting investors capital at risk and as far as I am concerned are acting as an irresponsible speculator, not a seasoned real estate investor!
