Wednesday, March 10, 2004

A Letter to a Friend on the Logic of Real Estate Investing

Hi Dan,

It was interesting talking to you today about your decision with Dave to buy your own office space. It sounds like your decision is based on the old investment analysis that goes: real estate was up last year, it was up the year before that and even the year before that and for the last 2,500 years.

I can tell you for a fact it is this type of analysis that causes people to lose money in the stock market all the time. You see if you do rear view mirror investing, you will never get out of the market in time.

You need to look at what is in front of you and what is in front is higher gas prices, steel prices, gold prices, etc. and a dramatically falling dollar. This
means that soon Alan Greenspan is going to raise rates and they are going to rise VERY quickly. I could go on about all the U. S. debt held by foreigners that will come flying back into the United States and the exploding deficits, but you should get the picture. The music is about to stop.

You work in the real estate industry (The mortgage biz will completely dry up.). It sounds like you have lots of real estate investments (Rents can drop. Talk to people in San Francisco where rents are down more than 30%.) And now you want to buy your office place? Diversification, to some degree, is always a smart thing. To have all your assets in one industry is suicide.

Good luck, but now when the music stops, you can't say you weren't warned. I hope you really think about this. It's probably going to get real ugly out there in the market. Lots of people will lose everything. I hope you aren't one of them.

Regards,

Bob

4 comments:

  1. Real Estate is still a profitable venture. But given the economy, there is much volatility within the market.
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  2. I should say things are looking brighter these days compared back then in 2004. The properties which are good to buy are the recession-proof ones and we know which properties these are. More info here.

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  3. That is the trick Shiela - finding something recession-proof. Having the help of a mortgage broker penrith would come in really handy here.

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  4. A letter to friend on real estate agent is very relevant and informative. Useful information

    ReplyDelete