Is it time to take a contrarian approach to real estate investment?
This is a subject we have mentioned in the past, the idea of going against the general consensus at the moment to find better value elsewhere.
Worldwide economy
While the worldwide economy is holding up so far there are grave concerns regarding the impact of the oil price which has fallen from $110 a barrel to just $50. There were already concerns about the short to medium term direction of the worldwide economy prior to this collapse in the oil price. As a consequence, we should not be surprised to see a slowdown in the worldwide economy although there will be hotspots around the world.
Any further reduction in economic activity around the world is likely to impact “frothy” real estate markets rather than those which are bombed out. This then begs the question, is it now time to look at those markets which have fallen out of favour and perhaps offer good long-term value if you can overlook the short-term issues?
European real estate
Recently there was a very positive report about the Spanish real estate market which has been a disaster for the last few years since the U.S. led mortgage crisis of 2008. While there is still a backlog of assets to jettison from troubled bank balance sheets it does seem as though investors are now starting to take a look at Spanish property again. The short-term climate will no doubt be choppy in Spain, and other parts of Europe, but if you can look towards the medium and longer-term will a contrarian approach work?
It does sometimes go against the grain to sell property assets which are moving higher to reinvest in property assets which are perhaps moving lower or at best stagnant. The idea of following the herd to make money does work for many people but timing is of the essence. If you have funds available for long-term investment then there may be some potential in looking towards bombed out European property assets or even some of the more depressed markets in the US.
Long-term approach for long-term gains
Nobody in their right mind would turn down a short-term profit in any investment market but they are often difficult to come by in the real estate sector. The more successful investors look at a long-term approach, often discounting short to medium-term movements, so long as their long-term story remains intact. It is also worth noting that the most successful of property investors traditionally have funds available for long-term investment as opposed to working against a short-term timescale if funding is tight.
There is real potential in an array of markets around the world if you take a contrarian approach although whether you invest your funds in stage payments to take advantage of any potential short-term weakness is something else to consider. At this moment in time, as one example, the European property market is struggling on the whole because of concerns about the euro and whether Greece is on the verge of leaving the EU. So long as the euro remains intact and the European Union moves forward together, even without one or two current members, will we look back on the current situation as something of a storm in a teacup?
Conclusion
It is very easy to follow the crowd looking at hotspots around the worldwide real estate sector. Those who make the better long-term gains tend to have their own investment strategy and a contrarian approach has worked wonders for many. If you’re able to spot a potentially long-term lucrative real estate market prior to the “hot money” arriving there is a chance to make a significant return. However, you may need to have nerves of steel and a very thick skin!