Progress in small Doses
The worst situation that you can find yourself in when the market turns is carrying too much debt. Too much debt does not mean that you own a house on which you have borrowed 120%. What it does mean is that you cannot meet the cashflow after any downturn in rents or increase in interest rates.
It is better to buy only one or two properties a year and be able to cover any shortfall from your own personal income than to buy millions of dollars worth of property and be continuously worried and stressed. Yes, it is good to leverage or gear yourself and have little problems, pushing yourself to growth with slight pain, but it is extremely uncomfortable to be constantly looking over your shoulder for bad times which might pounce on you.
High interest rates are not always a negative factor for the property investor. High interest rates stall the developers who cannot be sure of selling. They also hold back prices; in many cases they even reduce them.
The number of people who are able to afford homes is also restricted. All of the above affects you as an investor; however let's look at the other side of the equation. We see building plans being shelved, more homeowners having to rent and the prices of homes dropping.
As investors there are various profitable avenues which we can exploit. Remember, that as an investor is not about bricks and mortar but rather about dollars and cents.
Your yardstick is returns from nett operating income and even though the appeal of the house or the area is a consideration it is not a major issue as would be the case when a family buys a home.
Why Prices climb so Rapidly
Inflation is the most obvious cause of price spirals in the property game. Too much money chasing a fixed quantity of land and a time consuming lag in development projects ignite the prices.
Immigration from overseas has an important effect, as more people chasing a limited housing supply must push the price up. This proves more significant in less populated states like Western Australia and Queensland which also keep attracting people through internal migration whereas Victoria, for example, loses them.
There are also the factors of more of the younger first home buyers moving out of their families' homes and people living longer in this age of medical quasi-miracles.
As investors realise the steady and substantial profitability of investing in real estate, more and more overseas investors penetrate the market and inflate the prices by buying relatively cheap Australian real estate. Furthermore, currency fluctuations give them the edge over local investors.
By renovating a run-down property you will inevitably push the prices up with your sweet equity and hard work thus contributing to forced inflation. Also if the vacancy rate drops below 1% or 2% you then have a lot of desperate tenants badly in need of buying a property or moving constantly, as rents spiral.
High interest rates stop builders and developers from putting up new housing so prices of existing homes must increase. Alternatively, lower interest rates allow for easier home ownership and the supply of cheap money creates excessive demand as we have seen in the past.
Businesses, governments and also the stock markets all have an effect on the property market. But as new conditions arise more and more people are finding that the ownership of real estate is the key to a rich future.
The 'herd mentality' occurs when most people feel that the price of homes will come down and they rush in to sell before the prices do fall in turn causing the prices to drop. One can normally foreshadow this by watching television and reading well-informed newspaper articles.
Because real estate is such an imperfect market there is no exact set value for a property, rather there is an appraised or approximte value; you can hold a trump card if you can read these signals ahead of the pack. A lot of profitable deals can be made just before and after a cycle.
Plan to Make a PROFIT
Calculated risk gives you that confidence to put in place a plan of action, which will, after a pre-determined period of time, return you a profit. Most people are willing to try and beat the odds, but the shrewd investor rather goes always with the odds.
You only have to analyse the millions spent on Lotto each week where the odds are against you to such a degree that the chances of you winning Lotto are three million to one or the equivalent of winning Lotto every 15,000 years! You could get old just thinking about it!!
The casino is interesting in the sense that if you look at their five year profit projection there is a definite, positive cashflow which all the odds and history books tell us is correct. How many gamblers do you know who have a solid sustained five-year plan?
The Japanese do not look at tomorrow for instant profits; with patience, hard work and positive cash flow projections they have climbed to the number one slot in the world.
They lost World War 2 militarily and socio-politically but have won the economic contest since. We should also be backing winning odds by studying real estate trends; history proves that they go upwards in the longer term.
Do you know anyone who has lost money whilst owning a property for ten years?
Risking your money is poor thinking and acting, but risking other people's money on poor odds is downright dangerous. You cannot eliminate risks altogether but you can have many contingency plans waiting in readiness. Once you can respond to a bad turn the tide will turn, and the investment will become the secret of your success. This is probably the basic principle underlying the saying "Money comes to Money".
Just remember that conditions are never 'just right'. The timing is always 'just a little bit wrong'. If you are waiting for everything to be perfect before taking action, you are in possession of a foolproof excuse for failure. Make that tiny commitment, take that first step and remember that one little sentence which will move mountains - I CAN DO IT!
Author Brian Norton is a highly respected and astute investor, property developer, agent,auctioneer and author,
Article Source: http://EzineArticles.com/4564200
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