Will the Economic Downturn Change Real Estate Investment Habits?
Posted: Tuesday, March 17, 2009
by Dave Lindahl
RE Mentor
Depending on who you listen to right now we are either at the beginning of a severe economic slow down or the first steps into a full-blown recession. Either way the point of arguing which it is makes little sense. We are, to all intents and purposes, into what I would like to call tough times' and such times are rife with opportunity.
I know this sounds like a contradiction in terms so let me explain. When the going is good (so to speak) and anyone can make money almost everyone makes money and trends develop. Because money does not like risks investors latch onto trends (which we call bandwagons) until they fall out of favour or run their course and then new trends develop.
When things get tough you need to be more creative and look for opportunities which do not just generate cash but they also hedge you against risks and this is exactly where investing in multi-family properties makes perfect sense. Rather than magnifying the problems (as most people seem to think) this kind of approach actually spreads the risks. I know, for example, that at least one in nine families will be unable to meet the rent, move out and the property will remain empty for a month or two as I try to find another tenant. In a single-family property this kind of thing can wipe out your profit of the entire year. In a multi-family property however the multiple income streams generate enough margin for me to absorb this and go one without missing out in any profits.
When I explain this in seminars I am always asked about problems with tenants and everyone is surprised when I say that I never see a single tenant. I have negotiated with a company which handles that side of things, deals with messy plumbing emergencies and gets to hear all the complaints I have little time and no inclination to deal with.
This allows me to strategise my investing and my thinking and move on to the next big thing in my real estate portfolio. A slow down in the economy may well force real estate investors to reconsider their approach which means they will start to turn their attention on spread-risk ventures and multi-family properties.
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