When a single point climbing in the interest rate category, many investors would cringe at the thought of being squeezed for more monthly income, now the same investors are taking the nonchalant attitude of indifference.
What has changed is the economy, taking with it a he pool of available renters and would be tenants. As the economy falters, with jobs stalled and businesses closing the doors, investors are holding fire sales for empty buildings. Those that are still in business, have little need for loans and are keeping their capital under the mattress.
What about the ones who do have some money and want to continue to invest? Believe it or not, there are plenty of buyers out there, but they are squeamish. It’s been a while since I’ve had a buyer make an offer sight unseen and then worry about the financing after they were secure the deal was tied up. Somewhere they exist, but where?
A business commercial loan is normally different than a real estate loan. If you are looking for a line of credit with the local bank you do business with, you can approach them about lending you money for operating costs or expansion or even capital equipment purchases. Normally, you pledge assets in the way of inventory, accounts receivable, and you give the bank a security agreement by way of a UCC lien. This type of loan is not a real estate loan.
Real estate is normally the collateral when you are trying to fund a loan for a building or investment property. Normally, if you go to a bank, they will want to know that you occupy at minimum 51% of the property and that your business balance sheet will support the loan payments.
Credit card debt management is all the rage since the credit card companies have been suddenly spanked in Congress. The current administration is sending a message that they are hearing our pain. This might be true, but now, more than ever before you have to invest in yourself. Obama isn’t going to bail out anybody except the banks. By now, you should understand this. Invest in yourself.
I’ve lived through a recession in 1982 when Jimmy Carter decided to protect the public by de regulating the Savings and Loan industry. Concerned that they were over-stretched, his administration wielded the big bat, all in the name of protecting consumers and closed them down. This happened virtually overnight. The result of their concern for fellow Americans was that interest rates went to 22%. Imagine what it must have been like back then.
Did you say 22%…Yep, it was a difficult time to be in business, never mind the real estate business. Can you imagine trying to finance properties in the early 80′s? The common factor is that everybody was afraid. When uncertainty strikes, people freeze. They start to wonder…what will happen to my investments? Can you even imagine the lines at the banks as people lined up early to visit their money? People were afraid. SCARED.
Nobody was buying anything, in fact people started to save their money because the yield for CD’s was tremendous. Virtually overnight money stopped flowing as investors stood on the sidelines. You couldn’t buy or sell properties without tremendous hassles with loans. It was like a ghost town.
My next recession was in 1992. George Bush decided it was time to finally right an injustice and to invade the Middle East. His nemesis, Saddam, was at the forefront of this aggression. On the morning we invaded, reporters were sending the news of war to every household in America. I remember walking into Home Depot only to realize that I was the only customer in the store. Can you imagine how this might feel? Home Depot, where you have huge lines and zero customer service? I was buying plumbing parts that morning and when I inquired as to where everybody was, I was admonished by a cashier and told we were going to war. She didn’t have to say it, but I was feeling pretty un American for shopping on a day like that.
The reason nobody was fixing their faucets? The reason people stop buying and hoard money? FEAR.
It’s human nature. People were scared. They freeze when they are scared. Except for Warren Buffet. No way are people going to buy real estate and there wasn’t a chance they would sell anything. Money froze. People froze. The big freeze. Interest rates didn’t make a big jump like they did a decade earlier, the fed’s learned their lesson, but we did have the meltdown and the Dot com bailout going on.
Remember all of the equity being swept down the drain? Had not the current administration stepped in, we would have surely gone into a deeper recession because enormous amounts of wealth were lost. Instead, relaxed tax standards were set into place encouraging investors to get into the game.
Fast forward to 2010. Are you seeing a pattern here? Every 10-15 years we have to contract after tremendous expansion. This is nothing more than a correction and smart investors know this. We aren’t going into a depression and the price of housing isn’t going to be in the toilet for long.
Consider economics. Supply and demand. As a nation, we are still doing the nasty. Procreating, that is and enjoying, albeit, in less grandeur, our babies. As a people we are expanding. As families expand and grow older, the demand for housing grows. This is economics. Supply and demand. Kids move out from their parents house and start their own families. Kids go to college and marry and enter the job market.
Kids grow up and need housing. We aren’t building any homes. What does this mean? Do you think there could be a demand for real estate pretty soon? Of course there is. Put fear aside and invest.
Stay with your real-estate. If you are upside down you may need to dump your present properties, but remember the theory of supply and demand. We will need housing and building and industrial properties very soon. And when we do, when the supply, currently closely held by the banks, when it finally depletes, look out.
Why not be part of the solution and not a part of the problem. Put fear aside. Stop with the negative remarks and the whoa is me attitude. Instead trust in the long standing theory taught in tenth grade economics. Supply and demand. As families grow they will consume more. Find out what they consume and deliver it.
