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What the Hell do I do Now?
By John | March 9, 2009
The rat is no longer seeking cheese. He just wants out of the trap.
Investor goals have changed in the past few months. Many no longer rank profits as their primary objective. Safety - preservation of purchasing power - has taken precedence.
The collapse of credit, the sharp contraction of economic activity, and the plummeting stock market have taken their toll. The viability of seemingly healthy companies is called into question, creating an exodus from the stock market. The flight to safety has attracted funds to U.S. Treasury securities and caused their yields to approach zero. Massive federal spending and deficits convince investors of the inevitability of rampant inflation sometime in the future.
This is not a pretty picture. If you put your money in bonds, CDs, money market funds or your mattress you risk losing purchasing power through inflation. Holding securities in this uncertain environment is considered too risky.
What should investors be doing? Well, for one thing they should own assets that will retain value over time - assets that are not expected to be in excess supply in the near future - assets that are tangible - asssets that are real. Precious metals, such as gold, have always retained value in uncertain times. Unfortunately, gold has had a huge run-up in price in recent years. If the economic outlook should brighten, gold could be expected to decline in price.
For many investors, real estate now makes a lot of sense, even though they may not have invested in real estate in the past. For those lacking experience, they need help evaluating the market - evaluating the risk/reward relationship.
As we have seen, and are seeing, real estate is also subject to market fluctuations. The recent housing bubble is a good example. I would expect to see other categories of troubled assets in the near future, as leveraged properties become unable to service debt. Retail, office, motels, resorts, etc. are experiencing declining revenues and probably will even more so in the coming months. So, for the investor seeking safety, I suggest avoiding leveraged investments.
Real estate investing has traditionally focused on income and cash flow. But what do you do when the income and cash flow become exceptionally uncertain?
For many of these safety-seeking investors, I believe vacant land is the answer. Buy for all cash. Buy at bargain prices from motivated sellers. Buy properties with low carrying costs. Plan to hold for several years - don’t count on an economic turn-around in a few months.
Whatever type of property an investor is buying, he needs to have a good handle on the supply-demand relationship for that type of property in that location. Don’t buy something that will be in surplus supply in a few years. And, again, don’t assume we will come out of this recession conducting business as usual. This administraton is behaving as anti-capitalists. Money is being printed and spent at unprecedented levels. These actions have consequences, and will for years to come.
Know the market you are investing in. Consult others. Know values. Then buy with the confidence that you now own a solid, appreciating asset.
Topics: Rural Land Investment |