Post about "Investing"

Is a Global Real Estate Market Crash Really Imminent?

Have you heard of the butterfly effect?It’s a chaos theory concept whereby theoretically a butterfly flapping its wings in one part of the world and creating a tiny change in the atmospheric conditions around it could cause a chain of events leading to a catastrophic tornado reaping havoc on our lives elsewhere in the world for example.It sounds dramatic doesn’t it?Well, it’s a concept being cited right about now in many media reports, articles and press releases relating to the state of real estate marketplaces around the globe which is why it’s important that we understand the basic concept of the effect.The reason why the butterfly effect is being cited is quite simple – recently construction industry shares on the Spanish stock market crashed down as a result of just one more alleged scandal being heaped on many other horror stories relating to the real estate industry in Spain – so now many people are saying that this could just be the catalyst that causes property markets around the world to come crashing down around our ears.But is a global real estate market crash really imminent?This is an incredibly interesting question to examine. Never before have so many property markets around the world been so closely interlinked and intertwined. In part property markets are now more linked than ever because we can all travel about and buy real estate pretty much anywhere in the world. In part it’s because a number of countries have actively courted our attentions with regard to their real estate marketplaces because for them foreign direct investment is critical to the success of their economies. Additional reasons include the fact that an increasing number of us recently decided to get in on real estate investing meaning that more of our wealth than ever before is now resting in property markets around the world. Furthermore, we have just been through a sustained and intense period of property price appreciation pushed up by our demand for multiple properties and by our strong purchasing power at a time when many of the world’s economies are doing well, unemployment levels are low and interest rate levels have remained attractively low as well allowing ever greater numbers of people to borrow ever greater sums of money.So many markets are directly linked and many other markets have simply been similarly affected by patterns of purchasing power for example…therefore theoretically, if one market does crash it could affect all other markets right?Wrong.The two main reasons being given for a potential (and probably actually imminent) property market crash in Spain are over supply and lack of affordability. So in markets that are suffering the same conditions a real estate market crash could well be imminent.In other locations where supply is still well below local and international demand and where property stock remains attractively priced and affordable there is no exact and definite reason why the butterfly effect starting in Spain should cause a crash.However, if you are considering investing in real estate in a given location/nation you should always consider these primary factors: -1) What is your investment approach – a) acquiring capital growth or b) earning rental income?2) If a) acquiring capital growth, what local factors suggest that prices are going to keep on rising? Be sure there is room for sustained growth and that you will be able to exit quickly from the market when the time is right to sell. Make sure oversupply will not become an issue and ensure your potential resale audience will have funds available when it comes time for you to sell.3) If b) rental income, what does your tenant market desire, how much can they afford to pay for your product, can you buy low enough to attract a decent yield? Select appropriate stock for your tenant market demand.4) Always, always do extensive due diligence on your market demand – you will not resell or rent real estate that is not in demand so know your market and know the factors driving and affecting your market’s property based decisions.5) Never put all your financial eggs in one basket – in this case I mean in one commodity such as real estate or even in one single piece of real estate. The key to investment success is diversification.6) If in doubt, don’t buy!

Do You Have What It Takes To Invest In Real Estate?

I am often asked, “Is Real Estate a good investment these days?” For me the answer: “It is always a good time to invest in Real Estate”. The question most people should be asking themselves is, “Do I want to invest in Property and what is required?” Let’s have a look at some the issues relating to Real Estate investing.Personally, I have had a very positive experience with investing in property. Unfortunately, not everyone shares this experience. In fact, in his latest newsletter, Pat McKeough (the man behind the website, The Successful Investor Network) says, “If you buy property as an investment, you may discover that there are greater risks, and more work, than you bargained for”.Just as investing in mutual funds, stocks and investment certificates is personal, so is the decision to invest in property. Your first step should be to weigh all your options and compare it to other forms of investing. Let’s look at just a few considerations you should be aware of when investing in property.The first of these is “Financing”. A mortgage is a very common component of investing in property. The requirements for investment property are very different from the mortgage on the house you own as your personal residence. Fortunately, it is still easier to get financing for property than for stocks. The reason for this is the fact that real estate is less volatile and easier to appraise. Investing in property has a long history, which makes it easier for banks and financial institutions to analyze their risks. Its value also rarely drops dramatically overnight, as some stocks do from time to time. It’s important to remember that while leverage can enhance returns, it also can enhance risk. The amount of cash required to purchase investment real estate is more that the purchase of principal residence real estate. In some instances this ratio could be as high as 65/35. Where the buyer must come up with 35 percent of the purchase price plus closing costs.The next consideration is what we call “Other Costs”. When investing in property it is important to be aware of all the associated costs and fees. Among these costs we find realtor commissions, lawyers’ fees; all of which make up what is commonly called “closing costs”. You will also be faced with other expenses such as property taxes, maintenance costs, utility expenses, insurance fees, and financing costs like mortgage interest. While there are also costs associated in stocks, mutual funds and securities, there are not quite as many variables to pay.One must consider “Cash Flow” when purchasing property for investment reasons. Whether there will be a positive cash flow on your new property should play a major role in your investment decision. In order for a property to provide positive cash flow, the monthly rental income must exceed the expenses. This means the rental income must be greater than the mortgage, taxes, maintenance and other monthly expenses.If you have to subsidize the monthly income, then you are going to find yourself in a negative cash flow situation. Unless you are willing to hang onto such a property for future possibilities of a large payout, it is wise not to invest in such a property. There are properties with potential for further development that will bring a large windfall and in such a case it is necessary to know the market well enough go guarantee a substantial return. A word of caution; an experienced property investor will never rely on market appreciation as a reason for purchasing investment property. No one has been able to predict the housing market with certainty over the short term.You must be willing to put in the “Time and Effort” if you invest in property. We call this sweat equity. You will have to spend time dealing with tenants, arranging maintenance, doing the accounting and so on. If you have several properties you may find it easier to hire a property manager; but remember this will become another expense and will affect your cash flow.The important thing to remember is that the investment return must be worth the time and effort you are willing to put into it.One last detail to consider is the “Risk and Reward” factor. Just like stocks, property comes with risk. For one thing, property has liquidity risk. That is, it is harder to sell than stocks, mutual funds or other investments. You can get stuck with a property longer that you originally planned. You may also have to sell a property at a loss due to poor cash flow. There are risks is clear, however, some of the wealthiest people in the world have built their fortunes from real estate investing. Like so many other things in life, what you put into it is what you are likely to get out of it.