These days, it seems Wall Street might as well be the name of the latest Wes Craven
horror movie. It’s been a financial bloodbath featuring screams in the night, followed each morning by another casualty and the utter inability of police or government to track down the villain.
More often than not, it’s the potential victims; the scream queens
in these nightmares who save themselves. And around my office, I have witnessed more and more of them doing just that.
More and more people are turning to real estate to protect what’s left of their stock portfolio money. But doesn’t real estate have its own sequel to “Halloween
” under way? Yes. And no.
Real estate investment properties have four benefits: appreciation, principal pay down, tax savings and cash flow. Many investors during the boom years mistakenly focused their purchases on appreciation. The thinking was, buy now and sell when the market goes up. No matter the market conditions, this is roughly the equivalent of a bunch of teenagers going to a cabin in the woods toting nothing but alcohol for self-defense.
What are today’s investors focusing on? CASH FLOW. It’s what investors should always focus on, regardless of market conditions.
Won’t the property go down in value? Maybe. Maybe not. But if you take the money in your stock portfolio and invest it in the right rental property, as long as it’s rented, you’re realizing a return on your investment.
Example? If you have $100,000 in the stock market, and the value of the stocks you hold plummets or the companies you’re invested in don’t realize profits, you not only lose your original investment, you don’t collect dividends either.
If you took the same $100,000 and purchased a rental house, duplex or fourplex, however, you would continue to benefit from the positive cash flow created by rental revenue, regardless of the decline or appreciation of the property itself.
As chronicled here before, those people who are experiencing short sales or foreclosures on their own homes will not be eligible to purchase a property via a conventional mortgage for anywhere from three to seven years. Those folks are going to need to live somewhere.
The happy ending? Right now, there are actually properties on the market, in decent condition, that cash flow at rates of return not seen in a decade.