There has been speculation in
the media recently about the fact that real estate will begin
to fail and implode as it can only handle so much growth.
In my humble opinion these theories
don’t hold a lot of merit and here is why. First, understand
that there are three basic things that undercut the validity
of saying that there is a real estate bubble that people are
operating in.
1. There is no “international”
or “national” real estate market
2. The real estate market doesn’t 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 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 market lost
22% of its value 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 market dropped 22% in one day, one week or even
one month. In fact, the real estate “crash” of the
late 1980’s took several years to bottom out in most markets.
Keep in mind too the overall
performance of the real estate market you are investing in. Those
of you who have been active in the Edmonton market the last few
years might think that the market 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 market 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 market 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 market and will move the property quickly, or get
a better price which will help you in higher holding costs in
a softer market.
Now, just as a side note for
those of you looking at holding properties for future value 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 investor’s
capital to close these deals and the value doesn’t increase
what are you going to do? What if the value decreases in that
time? You are putting investor’s capital at risk and as
far as I am concerned are acting as an irresponsible speculator,
not a seasoned real estate investor!
About the Author
Motiva Group teaches people how to invest successfully in real
estate and are the developers of the "Zero Down in Canada
Real Estate Investment Home Study Course." Their web site
has many free reports and articles on real estate investing.
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