“BOOM! Here comes the BOOM….ready or not!” – from the song Boom by P.O.D.
Greetings from the Metropolis of Cedar Crest, New Mexico!
With a torn achillies tendon, I hobbled my way into the gym and turned up my Ipod. The song Boom by P.O.D. (one of the best workout songs there is) came on and I started to tear it up…pain and all. Pull ups, bench press, back rows……..Arrggh!
I hate working out…but I have a body type that if I do not workout I will ballon. Bad memories of being called “fat tard” back in the sixth grade start to infiltrate my mind when I move up pant sizes.
After my workout, I sat on a bench and listened to the song again…..and I started thinking real estate. “Boom…here comes the Boom…ready or not!” The chorus continued to repeat itself in my mind..and I thought long and hard about all the articles and books I have read in the past about what is to come in the Real Estate Market. Unfortunately, the “boom” is not in regards to “good times”…but…bad times for most…and opportunistic times for the smart investor.
One thought that sticks in my mind is what I read in Harry S. Dent’s April 2008 newsletter “….due to the fact that we have three major concurrent bubbles – stocks, real estate, and commodities – all unwinding in a similar time frame within a global economy with very different demographic and bubble trends. The last time all three major assets cycles peaked was the crash from 1835 to 1843, which led to the depression of the early 1840s” (there is a lot more to the report….but this caught my eye and my simple mind). Interesting huh?
“Obviously things are not going well.” – Captain Obvious
So….assuming things are going to get worse (which they are) and assuming real estate values you are going to plummet (which they are). Also assume that gas prices go up (which they will) and the population starts to hoard it’s money (economics 101). One more thing….assume we are heading into what most experts agree…deflation. Now the questions are….what is a real estate investor to do? Is it too late?
What do the experts say?
Well… here are three schools of thought (there are hundreds more…but who would read all that?) that come from a range of so called experts (Harry S. Dent, Robert Kiyosaki, Nouriel Roubini, Robert Prechter, and John Williams) and they all have to do with the philosophy that “cash is king” (This is how I interpreted the information and by no means should you think that I interpreted the information correctly…do your own research please):
- Raise as much cash as possible via LOC (lines of credit…if you can get one), HELOC (Home Equity Line of Credit…if you can get one)…then hold on. Be a scavenger and cherry pick deals as they come up. My feeling is you will not see the “cherries” until early next year. Remember…when the market hits bottom…here is where you will make your money….on the purchase…and you will be ready if you have cash.
- Sell everything….and hold on to your cash. Same as number one…but with the thought that if you sell now, most experts believe you can buy it back at 40 – 50 cents on the dollar in the future. Holy cow!
- Sell your non-cash flowing properties (i.e. land) and under performing assets now (if you have a buyer). Also sell your A and B properties. Hold on to properties that serve lower income populations. The thought process here is that class “C” apartments, mobile home parks, and retail shopping centers (retail that caters to lower income populations) will provide nice cash flow and probably over perform (if you purchased right) in the coming years.
Smart investors make their money in good markets and in bad ones……which one will you be? Only time will tell.
OH…..I would love to hear what you are doing to prepare. If you are not…I want to hear from you anyway..so please comment….
Until next time…..rob