Economic Depression Creates New Opportunities for Real Estate Investors

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 real estate investors who freeze with fear and let events over take them. Their non action is the cause oftheir down fall. On the other hand there real estate investors who dare and are willing to take action during the 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.

US Government, Federal Reserve and other European countries acted in time to prevent the predicted economic depression what could have been run on the banks and collapse of the financial system.

I have been following the crisis closely and not one financial expert is able to comprehensively tell us the depth and magnitude of the economic depression. Non of the experts Can also predict as to when the recovery will start.

It seems the problem is not limited to sub-prime loan crisis. America is engaged in two very expensive wars that has cost trillions of dollars. Obama is trying to correct the situation by pulling out of Iraq and concentrating on Afghanistan. He is also trying to rally NATO to contribute more towards war in Afghanistan to lessen the burden on America.

American government and the people have been living beyond their means for several decade and it is all catching up.So far there has been no talk of tightening up the belt, bringing in financial discipline and sacrifice that is needed to put the house back in order. There is only talk of patch repairs and this to my opinion will simply not work.

US is the consumption power house of the world. Sooner than later US will need to tighten their belt and reduce theirconsumption if they have to put their house in order. This may no longer be choice for them.Circumstances will dictate that they will have to reduce consumption. Their pockets will not support the purchasing power. The rest of the world will have to adjust to this changed reality. This is like to result in world economy slowing down in short run until such time slack is picked by other countries.

How does the current economic depression relate to real estate? The so called bail out package will result in printing or electronically producing more money. This will dilute the value of the dollar and may cause inflation which in turn may result in increase in interest rates. Inflation will help real estate investors because of rising rents and increase in prices of real estate. Increase in interest rates will be a threat for those who are heavily leveraged.

There is break down in the financial system in USA. The whole world is feeling the reverberations of the economic depression but are not sure how it will affect them. Rest of the world may feel that the problem is far away across the ocean and their money and life style is safe and protected. The world that we live in has completely changed during the past two decades.We are no longer isolated.

Most of the money now is electronic. It is not even printed. The financial network is so deeply inter connected that it will be naive to expect that the pain will not hit everyone sooner than later.

It is the financial system that pumps 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. Most of us related to real estate are already feeling the crunch. It will take time, effort and energy to rebuild credible financial systems in which we can have faith. It will take a new generation of entrepreneurs to rebuild second tier financial companies that have vanished from the scene. This is not going to happen over night. We are in for a long haul. The clouds Of economic depression will take some time to clear.

The real estate investing strategies will have to change drastically if one is to remain successful. If you are a real estate investor 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 couple of years.

In this market buy properties that will give you instant equity by buying below value. This is better than waiting for capital gain that my 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.

Take 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.

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 even most of the experts do not have 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.

If you are a real estate investor then be prepared to take advantage of the wealth shift that will happen in the present economic depression. Such opportunities come up once in a life time.

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