Jeff Adams Simple explanations of complex property market mechanisms.

Real estate has been the apple of many investor’s eyes and I believe will continue to be so. The current lull is just a temporary phase cause by an unprecedented economic slide. Always being in demand is a stressful thing and can lead to hast & loss – making investment decision. Hence I have compiled a number of largely occurring trends which I have observed throughout my longevity in the real estate market, and also explained their machination and how they affect properties.

Real Estate and the economic performance

Real estate markets have a strong correlation with the economic scenario. During a bullish or upward market the sentiments are strong and positive thus you have on your hands many investors who are willing to place their money. Land being a prime asset is generally considered one of the safest and most rewarding assets. So with more people investing their money into land or real estate there is bound to be an upshot in price.

Now consider the down scenario. Low confidence in the market and people are unwilling to borrow or spend will create less funds for investing. If this occurs there will be less demand for real estate, which will cause the equilibrium price (the price at which buyers are exactly equal to suppliers so that everyone goes home happy) to drop.  Furthermore a side – effect of this downturn is that there will be a tendency for increase in foreclosures.

The Foreclosure Element

During the course of periodic payments towards mortgages, some dire circumstances occur such as a divorce, relocation, arrest or if the mortgagee is unable to pay the interest and principal payments, this leads to a situation where the mortgagee defaults. Now the lender is unable to squeeze out any form of money to make good on his loan and as the property was bought from his money, the lender or bank seizes the property in question. This is known as a foreclosure and has been constantly on the rise in the past few years.

Gold attracts miners from all – over

Now there has been some recent positives in the real estate market and as such there will be many investors eyeing the reward. But Real estate is a special case and it is not only me who believes so. The real estate market has always been attributable with an inherent demand which makes it a considerably lucrative investment. Good property is always in short supply and hence there are always buyers.

Capable of buying a couple of blocks in a flash these hedge funds have select targets which involve assets with maximum possible returns at low risk. Meaning that they are after the primes and are capable of overpowering any other mom – and – pop investor to it.  These hedge funds after buying a bunch of properties in the market, have a hold cycle at the end of which they usually sell once the particular investment achieves its targets.

Currently there might have been news on high foreclosures but with signs of a progressive world economy, the directly correlated market is moving up. In such scenario’s you have the arrival of the Hedge funds. These hedge funds understand that there is profit to be made and are ready to grab it. With a vast pool of financial funds at their fingertips and their high end information processes these are entities whom sports buffs like me normally call ‘game – changers’

This would easily delay your investment by a couple of years and slash of a hefty amount of the profit. So what can be done? although the game has changed there are still a number of tricks which you can pull to capitalize on the opportunity. Buying the properties in anticipation that the hedge funds will be after you particular set of properties and hence selling it to them for an instantaneous profit. Otherwise buying property around their investments is also a nice way to benefit from the comparable valuation which factors in the price of surrounding properties. If you are not up for all this then go by the classic phrase –

If you can’t beat them join them

Jeff Adams

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