Exit Plan First Real Estate and stocks have very little in common, but people often think that investing in one is the same as the other. People believe that all types of investments are based on buying low and selling high. But few people really do this. If they feel that they are safe in investing then you are too late. Buying a stock only makes money when you buy and try to predict a market and sell at a higher price. Since real estate is illiquid and finding a buyer especially in this economy is difficult, creating an exit plan or having multiple exit plans (which was last week's article) is the key to your real estate success. If you are traveling on the road to your financial freedom, you need to know where you are going.
Most speculators are trying to find a safe and secure place for their money. I often hear that people want to purchase a property and sell if for more in 3-5 years. What makes you think that a real estate recovery will occur in 3-5 years? Rich Dad author Robert Kiyosaki told me that the entire financial market will crash in 2016. We all have our opinions and no one has developed a time machine. As investors we need to work with the facts, reality and the truth. We need to make smart decisions based on content that will affect our context.
So let's look at the history in order to predict our future. In 2007 we crashed hard in the real estate market for residential. This is better known as the subprime meltdown. People that did not deserve loans were given them with inflated prices and easy and fast money. Anyone that had a heart beat was given loans of 110% of value of the property! After, all you never lose money in real estate, right? This is simply a manipulation by our banking system (which will have its own article in the future). Stated income loans are fine for short term financing but are not really designed to be long term solutions and they were willfully sold to an undereducated public that has no idea how they work. It's a real shame that people don't care to know more about their financial future or care to get educated on the facts. I think we all know that this was a real tragedy for the subprime borrower. But the real disaster is waiting to happen, just like we all know about the great depression there is looming a large issue of the prime meltdown. In many capital appreciation markets such as California (where so many Asians want to invest), prices have already declined 30%. Where subprime loans were given to janitors stating their income at $500K/yr., a prime lender has good credit, W2 verifiable and has a real income stream. But the problem is that these traditional loans are going to be rebalancing is 2012-2015. The other fact is that these people that have great financial backing will not only have to pay higher monthly payments but also are paying their money into an investment that is worth 30% less than when they bought it, this is simply not a sound exit plan. Many of these people will be walking away from their properties in large numbers. They are simply wanting to get all the properties, create the demand through market manipulation and don't worry the banks want the properties, it just takes them time to process the paperwork. When they choose to start selling these properties at higher prices and lend on money at a higher rate is when you would note a recovery in the economy. We are headed towards another financial meltdown we already have worldwide riots right now. Barring any government intervention our financial ship is being guided towards another iceberg, where right now we really don't know how large of how deep it really is. The impact will be a real catastrophe for the middle class.
Let's look back in history a little further, 1997 at the last peak in real estate. Ronald Reagan was president and he told everyone to, "build it and they will come". Lending was wide open and we had some really great boom years. Inflated prices, easy lending money and a "strong economy" was the expectation level for all. Real Estate prices soared and so did everyone's ego. You could be financially illiterate and make money in a boom economy. The peak in 2007 was 12x larger than 1997. It took the banks 20 years to foreclose on properties and remarket their predatory lending practices. What makes you think that markets will recover in 3-5 years? We are still headed towards hard times, and things will get worse before they get better.
I like most don't really don't have the will to speculate on a 20 year cycle of getting paid, this is not a long term exit plan. Buying low and selling high sounds great in practice, but no one ever does this. Buying properties in mature markets does not create cash flow. Stop Gambling and let us create a long term plan that will help both yourself and your family's future. If selling is your only exit plan then you are looking at a 20 year time frame, we are only 5 years away from the last peak in real estate so we have at least another 15 years away from the next capital appreciation boom. Investing in cash flow real estate properties today is the safest, best and strongest use of your money in today's market.
If you did what everyone else did in 2005 then you lost. If you want to do something different and get a different result then you need to make a context change today and start taking financial responsibility for yourself. I can help you. Come visit me at longfininvestments.com and put a real financial plan for your success in real estate.
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