This question has been lingering inside the minds of many investors.
Why? Falling home prices, bank failures, foreclosures, and sub-prime loans are the main reasons.
Almost all experts across major industries will concur that real estate is still one of the best investments because it always flourishes in the long term. Downturns are never fun; however, patience and the ability to focus on the long run will guarantee huge rewards. Real estate is quite different from the stock market and since it’s not a volatile industry, you should not worry about ups and downs.
Since the 1920s, the value of real estate in Europe has been steadily increasing and this makes it easy to accumulate wealth after a few years even without compounding the interest. To succeed in this industry, don’t think short term.
Flipping is a simple but risky method of earning income in real estate. Many business people prefer to buy a house, repair it, and sell at a profit. To prosper in this niche, you have to be in it for the long run for the properties you buy and repair to increase in value. On the other hand, a downturn can occur when too many flippers sell or rent their properties at the same time.
This strategy has been put to test plenty of times, and it’s one of the proven ways to create wealth. Time passes by quickly and you’ll be glad you purchased a cheap townhouse or condor a few years ago that you can sell for profit. If you hold for a decade or two, the property will have doubled or tripled in value depending on other relevant factors, of course.
Can Real Estate Still Be a Good Investment?
- Greed – The greed for making huge profits is what will cause you to invest in a property you cannot afford. You’ll end up struggling for the rest of your life if you purchase an expensive house that requires hefty monthly payments.
- Property without cash flow – Many investors are enticed to purchase rental properties that seem desirable without considering cash flow. This often leads to disaster during downturns in the market.
- Borrowing too much – You might get tempted to take the highest possible loan amount offered when prices on your properties are at their highest. When prices drop, this spells trouble because the loan amount will be higher than your assets and you may end up bankrupt.
- Taking wrong loans – Subprime loans should be refinanced as fast as possible because they cause trouble when they are reset. You should also avoid adjustable rate mortgages. Fixed rate loans are the best for the buy-and-hold strategy.
Final thoughts about this:
Down cycles are stressful when the value of your property depreciates; you should not lose hope because this is one side of the coin. For the expert investors, down cycles are the best times to acquire new property at subsidised prices. The trick here is to buy property below the average market price but in great locations with the potential for growth.