Does This Seem Like 2001 All Over Again?
From a financial standpoint, does this feel like 1999-2002 all over again? Does to me.
In case you were not around the real estate and investment industry back then, here's a capsulized version of what was going on back in the day.
We were having a recession and traditional paper and equity investments -- like stocks, bonds, mutual funds, savings accounts, commodities -- just were not paying anybody anything. The stock market was up one day and down the next -- and most days it was down. Many people with money couldn't make any money with their money. It was frustrating as the dickens for most of us and some people lost fortunes in the stock market.
Since people who had some money couldn't make any money on their money with traditional paper investments, many of them began to look outside the box and search for other ways to make money with money.
Somewhere along the line, some enterprising soul may have said "Hey, real estate is undervalued in places like Florida, Arizona, New Mexico, the Carolinas, and a place out in the desert called Las Vegas. Let's go to those places, invest in property, rent it for a monthly profit and then sell it to other investors and make money on our money. We don't even have to put much down because we'll use 'creative financing' that allows us to only pay the interest on the mortgages and defer paying anything toward principal. Who cares? We'll sell these rental places in two or three years when the stock market comes back and reinvest the money on Wall Street anyway. By then, real estate values will have gone up and when we sell the properties we'll all make a handsome profit."
For a while they were right. Then, in 2008, the roof fell in. The rest, as they say, is history.
Okay, so why does this feel a lot like 2001 again?
For one thing, is anybody able to make money with money right now?
We're seeing the Dow Jones Industrial average swing wildly from session to session -- down 268 points yesterday alone. S&P is down. NASDQ is down. Equity investors are taking it on the chin and losing money hand over clenched fist. Fear of European debt, uncertainty about China's economic power, national unemployment and underemployment, retail sales jitters, and mis-trust of government economic policies are combining to create an atmosphere that makes it virtually impossible for investors to make money on money.
That's what makes me feel like it's 2001 all over again.
So, I wouldn't be too darn surprised if droves of investors don't start looking to real estate again as a safe haven.
After all, that's exactly what they did in the first half of the decade.
Buying real estate back then was little more than an investment alternative. Real estate became a commodity to many of these investors. For Pete's sake, you didn't think that all of those people who invested in real estate really wanted to own property, did you?
Most of those investors didn't care a rats patootie about owning real estate, and probably would have been happier without it.
What they cared about was making profits. And last time I checked, they call that capitalism -- and I'm 100% in favor of it. But lets be realistic about buyer/investor motivation back then.
You see, what those investors soon found out was that there is a downside to owning income-producing real estate rather than stocks and bonds. Know what it is?
The downside of owning investment real estate is that you have to take care of the property, or hire somebody to take care of the property. If you don't, the property deteriorates and drops in value. Taking care of property means a lot more involvement with the investment than most of these people wanted. With a stock portfolio all you have to do is jump on the computer and see if you're up or down for the week, and then make a nice clean paperless transaction on E-Trade.com. All those real estate investors back then didn't really care about real estate. Their objective was to make money. Real estate was just the tactic that had the best chance of making the largest profit with the smallest downside risk.
Investors want the same thing today.
The most common advice I'm hearing from financial strategists is for investors to "park their money in cash and sit on the sidelines until things straighten out". Sorry, but parking money in cash means the money is not earning more money. Investors want to make money on every dollar every day. So, many investors are none too happy with their financial advisers and brokers who offer such guidance.
Given this kind of financial world, something tells me not to be too surprised if those investors don't start showing up again in the Southeast and Southwest with their checkbooks loaded with money salvaged from ailing stock portfolios. Now, that sounds like 2001-2003, doesn't it?
They'll be looking for bargains and heaven knows there are plenty of those out there right now, offered by desperate sellers all across the country. The reason? Investors know that of all the investment opportunities that exist, only one has consistently moved upward in the long run: real estate. Investors may not really want to own real estate -- it's not very liquid -- but once again it is becoming fairly stable in price and is easily leveraged due to low mortgage rates for those who qualify for the loans. It's perfect for the long term investor, but probably not suitable for the short term day trader-types who thrive on faster action and love market volatility and risk.
So, here's what I'm thinking. With mortgage rates very low, real estate inventories very high, home prices devalued, and the paper investment market tanking, we just might see another real estate buying frenzy from investors who want a better, safer return than Wall Street has been able to provide.
If you're a buyer who is on the fence about making a real estate versus a stock market investment, remember this: I heard on CNBC recently that $100,000 invested in the stock market ten years ago would today be worth $100,000. In other words, there has been no growth in equities for the past decade. As the Wall Street guys would say, the retail investor who only plays equities long has been profitless in the last decade.
So, how's the growth outlook for your equity-based 401-K look now that you own that little factoid?
Despite the recent problems with real estate, I'm quite sure that a home bought ten years ago would today be worth more than the amount paid. Mine is. Plus you can offset your costs of ownership by the monthly rent profits. And you can get some hefty tax deductions, at least for now. Pretty nice, eh?
If you are a real estate agent, the investor market just might be a good place to start looking for new business once you know how to talk investor-speak and understand what an investor is really looking for. Candidly, I did pretty darn good working with investors in the "good ol' days" and believe we just might be seeing a return to that kind of buyer. Why not give it a try?
Happy Selling!
-30-
In case you were not around the real estate and investment industry back then, here's a capsulized version of what was going on back in the day.
We were having a recession and traditional paper and equity investments -- like stocks, bonds, mutual funds, savings accounts, commodities -- just were not paying anybody anything. The stock market was up one day and down the next -- and most days it was down. Many people with money couldn't make any money with their money. It was frustrating as the dickens for most of us and some people lost fortunes in the stock market.
Since people who had some money couldn't make any money on their money with traditional paper investments, many of them began to look outside the box and search for other ways to make money with money.
Somewhere along the line, some enterprising soul may have said "Hey, real estate is undervalued in places like Florida, Arizona, New Mexico, the Carolinas, and a place out in the desert called Las Vegas. Let's go to those places, invest in property, rent it for a monthly profit and then sell it to other investors and make money on our money. We don't even have to put much down because we'll use 'creative financing' that allows us to only pay the interest on the mortgages and defer paying anything toward principal. Who cares? We'll sell these rental places in two or three years when the stock market comes back and reinvest the money on Wall Street anyway. By then, real estate values will have gone up and when we sell the properties we'll all make a handsome profit."
For a while they were right. Then, in 2008, the roof fell in. The rest, as they say, is history.
Okay, so why does this feel a lot like 2001 again?
For one thing, is anybody able to make money with money right now?
We're seeing the Dow Jones Industrial average swing wildly from session to session -- down 268 points yesterday alone. S&P is down. NASDQ is down. Equity investors are taking it on the chin and losing money hand over clenched fist. Fear of European debt, uncertainty about China's economic power, national unemployment and underemployment, retail sales jitters, and mis-trust of government economic policies are combining to create an atmosphere that makes it virtually impossible for investors to make money on money.
That's what makes me feel like it's 2001 all over again.
So, I wouldn't be too darn surprised if droves of investors don't start looking to real estate again as a safe haven.
After all, that's exactly what they did in the first half of the decade.
Buying real estate back then was little more than an investment alternative. Real estate became a commodity to many of these investors. For Pete's sake, you didn't think that all of those people who invested in real estate really wanted to own property, did you?
Most of those investors didn't care a rats patootie about owning real estate, and probably would have been happier without it.
What they cared about was making profits. And last time I checked, they call that capitalism -- and I'm 100% in favor of it. But lets be realistic about buyer/investor motivation back then.
You see, what those investors soon found out was that there is a downside to owning income-producing real estate rather than stocks and bonds. Know what it is?
The downside of owning investment real estate is that you have to take care of the property, or hire somebody to take care of the property. If you don't, the property deteriorates and drops in value. Taking care of property means a lot more involvement with the investment than most of these people wanted. With a stock portfolio all you have to do is jump on the computer and see if you're up or down for the week, and then make a nice clean paperless transaction on E-Trade.com. All those real estate investors back then didn't really care about real estate. Their objective was to make money. Real estate was just the tactic that had the best chance of making the largest profit with the smallest downside risk.
Investors want the same thing today.
The most common advice I'm hearing from financial strategists is for investors to "park their money in cash and sit on the sidelines until things straighten out". Sorry, but parking money in cash means the money is not earning more money. Investors want to make money on every dollar every day. So, many investors are none too happy with their financial advisers and brokers who offer such guidance.
Given this kind of financial world, something tells me not to be too surprised if those investors don't start showing up again in the Southeast and Southwest with their checkbooks loaded with money salvaged from ailing stock portfolios. Now, that sounds like 2001-2003, doesn't it?
They'll be looking for bargains and heaven knows there are plenty of those out there right now, offered by desperate sellers all across the country. The reason? Investors know that of all the investment opportunities that exist, only one has consistently moved upward in the long run: real estate. Investors may not really want to own real estate -- it's not very liquid -- but once again it is becoming fairly stable in price and is easily leveraged due to low mortgage rates for those who qualify for the loans. It's perfect for the long term investor, but probably not suitable for the short term day trader-types who thrive on faster action and love market volatility and risk.
So, here's what I'm thinking. With mortgage rates very low, real estate inventories very high, home prices devalued, and the paper investment market tanking, we just might see another real estate buying frenzy from investors who want a better, safer return than Wall Street has been able to provide.
If you're a buyer who is on the fence about making a real estate versus a stock market investment, remember this: I heard on CNBC recently that $100,000 invested in the stock market ten years ago would today be worth $100,000. In other words, there has been no growth in equities for the past decade. As the Wall Street guys would say, the retail investor who only plays equities long has been profitless in the last decade.
So, how's the growth outlook for your equity-based 401-K look now that you own that little factoid?
Despite the recent problems with real estate, I'm quite sure that a home bought ten years ago would today be worth more than the amount paid. Mine is. Plus you can offset your costs of ownership by the monthly rent profits. And you can get some hefty tax deductions, at least for now. Pretty nice, eh?
If you are a real estate agent, the investor market just might be a good place to start looking for new business once you know how to talk investor-speak and understand what an investor is really looking for. Candidly, I did pretty darn good working with investors in the "good ol' days" and believe we just might be seeing a return to that kind of buyer. Why not give it a try?
Happy Selling!
-30-
posted by Terry Ward at 6:05 AM
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