Bombed out property or highflying real estate?

Isn’t it strange how many property experts seem to have retrospectively forecast enormous leaps in real estate values after the event? When you bear in mind the enormous fluctuations in worldwide real estate market, more reflected in the Dubai market over the last 15 years so than anywhere else, is it better to look towards bombed out property sectors or highflying real estate?

The world of real estate attracts many different views, comments and investment strategies. Some people tend to go for the highflying real estate sectors of today which may move further tomorrow or may bottom out and fallback. While others tend to go for some of the bombed out sectors around the world which are out of favour at the moment but will, hopefully, eventually return to the fold.

Bombed out property?

If we look towards the USA there are many markets which have been ignored for many years, while others continue to flourish reaching property valuations which are in the eyes of many unsustainable. Just yesterday we touched upon ex-Microsoft founder Paul Allen who inadvertently picked up his first chunk of real estate in Seattle after a loan default. He had to wait many years to see the market return to favour although after bagging the scalp of Amazon and building its head office his real estate investment company, Vulcan, went from strength to strength.

Quote from PropertyForum.com: “The issue of eco-friendly properties is one which has been around in some shape or form for many years. As eco-friendly policies are developed by various governments so this has spilled over into the property sector with an array of new regulations regarding new builds.”

Even though Paul Allen is estimated to be worth in excess of $17 billion even he had to wait until the Seattle real estate market turned, until Amazon decided Seattle was the place for its head office and investors followed suit. There is certainly a very strong investment argument for acquiring so-called “bombed out” property assets although these can take many years to create a significant return. Indeed, it has to be said that some property markets will never return to their former highs and many may remain out of favour for years to come.

Highflying real estate?

Using a strategy which many day traders use to follow the latest “hot shares” some real estate investors are happy to focus upon the in favour markets attempting to squeeze the last few dollars before they turn. As we have seen in markets such as London, some real estate sectors can outperform even the wildest expectations of their followers and indeed very often traditional investment valuations go out of the window. However, there is a downside to chasing the latest highflying real estate market!

If you can invest your funds and cash them in before the market turns then all good and well but if you are left holding real estate assets when investors are leaving you may have to hold these for some time to come, or else bank a short-term loss. Sometimes a slight wobble in the investment market might be discounted as short-term fluctuations, then the downturn continues and many less experienced investors continue to hold for the “eventual recovery”.

Sometimes it is best to cash in your chips when the market turns to ensure that while you may take a short-term loss you still have sufficient funds to look elsewhere when the time is right. It is just as hard, if not harder, to take a loss in the real estate market as it is to take profit!