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The Credit Crisis and Potential Shorts

Ah ha! You boys are talking all around the true opportunity to make long term profits off this financial sector crisis. This true opportunity is to roll much of your money over into real estate.

Stock traders frequently chase around different market sectors based on anticipated better performance within a given sector. Stock traders often do not think of sectors outside our traditional stock market sectors.

Real estate investment will prove a very viable investment in the long term, with long term being a number of years away. The real estate market will recover, always does, but will recover very slowly as is expected and as is historical. There is a way to profit and multiply your profits in the real estate market. This method is to purchase rental homes for income.

Only trick to rental home investment is location, location, location. A typical three bedroom, two bath home is a more attractive neighborhood is an excellent investment; we have never lost money on income real property. Our equity value moves up and down in the short term, but long term growth is typically better than most long term stock investments.

Home prices have not quite hit bottom but are coming very close. Some micro-regions are now beginning to display increases in home prices, others have stabilized, most regions are still yet to fall another two to four percent. Timing of purchase of real property is not too important but is to be considered. This is a hot buyer’s market for real estate; prices will not be this low ever again during your lifetime.

Opportunity here is double. There will be equity growth plus enjoyment of monthly rental income. Equity growth will be somewhat slow to resume but monthly rental income is quite reliable; a virtual guarantee if you properly manage your rental homes.

Here in Southern California, an average home in a decent location will fetch a rent in the range of $1200 to $2000 per month. This is a decent fixed income. Demand for rental homes has skyrocketed right along with foreclosures skyrocketing. We enjoy a waiting list for our rental homes, a very long waiting list.

Of course there is upkeep, taxes and such. This carves out about one-fourth of yearly income.
Rental homes do require work, especially if you buy a “fixer upper” type home but there is no better money earned than sweat equity. Sometimes a headache dealing with tenants but income is very consistent, very reliable, very low risk.

Concept is, on the average, you enjoy ten percent growth in equity per year plus your annual income from rent collected. This is a very decent growth in your money. Equity moves up and down with market value but, historically, always moves upward. Rental income never moves downward and enjoys room for modest increases in rental fees, especially between tenants.

Our approach to buying real estate is to always pay cash. We have no mortgages making for an excellent equity position. However, most are not willing to work at real estate investment for decades to earn a position of being able to pay cash for homes. There is an alternative. This is to make a down payment of fifty percent then finance the rest. Typically, your rental income will pay your mortgage payment, with fifty percent down on the purchase price. If a lesser down payment, your rental income will not quite meet your mortgage payment which is a bit of negative cash flow but your equity growth compensates for this. Other words, your tenants pay a majority of your mortgage payment, you pay a little and realize gains in equity growth. More succinct, your tenants are paying for your purchased house.

This is an excellent time to roll your money over into real estate. Again, location of a home is extremely critical. A decent neighborhood is a must typically gauged by a location within a good school district and a safe neighborhood, which parents want.

A caution is some regions in our country will experience continued falling in real estate prices to a rather severe degree. Typically, rural, industrial and urban centers are not good locations. This is to be carefully considered and carefully researched.
Regions like Southern California, lower Florida, Las Vegas, Reno, Portland, Seattle, New York, Boston and other popular cities, out in the suburbs which are attractive to family living, these are types of micro-regions which will recover first and display the greatest growth over the years. In some cases, equity growth can be up to 15 percent to 20 percent per year, in a high demand location, often suburban areas surrounding major job market centers.

Real estate market crashes like today’s do not come around very often. Usually crashes like this are twenty to thirty years between. Chances are very high this is the best buyer’s real estate market you will witness during your lifetime.

Should you be looking to safely profit on this credit crisis, consider buying income real property.


Okpulot Taha
Choctaw Nation