Are you brave enough to play the real estate investment long game?
If you are looking for depressing news around the world you do not have to look very hard with concerns about the Eurozone, concerns about the US economy, issues regarding the price of oil and ongoing chatter that interest rates will increase sooner than we expect. Against this background it is very easy to become concerned about real estate markets, potentially sit on the sidelines and wait for the worst to be over. However, history shows us that some of the most successful real estate investors of all time have the ability to look past short to medium term issues and remain focused on the longer-term picture.
Investment strategies
There are many different strategies to consider when looking at real estate and your exposure in the longer term. There will be a time when it is perhaps more beneficial to borrow money, there will be a time when it is perhaps more beneficial to build up cold hard cash and there will be times to mix the two. It is no surprise to learn that many real estate markets around the world are “performing better-than-expected” with base rates at historic lows and finance relatively cheap. The simple fact is there is no real business sense in hoarding cash on account because there is minimal if any interest available.
How you finance your real estate portfolio going forward may change, will reflect your circumstances at the time although you must be responsible and flexible.
Pound cost averaging
One of the more popular strategies in the investment arena relates to so-called “pound cost averaging” which is the process of picking up investments on the way down. As the market nears its bottom you get more for your pound and are therefore able to average down your price. The idea behind this very successful investment strategy is that if the markets suddenly turn, and things look rosy again, you already have an exposure and you can buy on the way up. The simple fact is that you will never buy at the bottom and you will never sell at the top but if you are able to buy nearer the bottom and sell nearer the top then you will do very well in the future.
It is also worth pointing out the fact that you should only invest what you can afford even if prices look “too good to be true”. There are many real estate investors who have perhaps done fairly well on their first few trades and then go looking for “the big one”. When you over invest with money that you cannot afford to put aside for the longer term you will be at the beck and call of the markets if you need to sell at relatively short notice. At the time it may seem as though you have just enough to invest, you have no need for cash but things change and it would be typical for the markets to be struggling if you were a forced seller – always leave yourself a buffer between what you need and what you have to hand. Also, if real estate investment sharks get a sense that you are a forced seller they will attempt to buy your property assets at a steal!
Conclusion
Like any investment market the key to a successful long-term career in real estate is to take into account the short to medium-term outlook but never lose track of the long-term potential. If the long-term potential was to change then this is a whole different ballgame and you may need to re-evaluate your real estate exposure – reducing or increasing where applicable. Drip feeding funds into the marketplace during difficult times can prove very lucrative as can reducing your exposure in a rising market. Aside from over commitment on the financial front, effectively spending money you have not got, one of the other factors to consider is greed. Greed can cloud your judgement, cloud your mind and ultimately have a major impact on your investment returns. Always leave something for the next person!