Descending Deeper In Order To Crawl Out

A simple analogy

In mountaineering, there is a counter-intuitive notion that if true disaster strikes, and you find yourself still alive but alone after falling into a deep, icy crevasse, it might be best to attempt to find your way back out by lowering yourself down deeper into the mountain.  Then you can begin to look for a tunnel that will lead you out. At least, that’s a worst case scenario.  The analogy is a good one for real estate investing in our current political and economic climate.

The economic paralysis that grips the country is about to get worse, as we wait with baited breath for the “supercommittee” to agree on a package of deficit-reduction moves for Congress to rubber stamp into law…Ummm…Right.

Just don’t hold your breath too long

At this point in time, and with a deadline looming this week to get the deal done, odds are good that a compromise between the bipartisan group will yield nothing. If this internal battle/stalemate continues (which has been going on since last year’s elections), an automatic plan , or sequestration, will occur. That plan calls for steep, across the board cuts in the federal budget, most notably in the military budget.

That is, unless Congress somehow agrees to come up with an alternate plan. One that president Obama would approve. Otherwise, back to the sequestration scenario.

Some pundits have chimed in of late that automatic cuts would be the painful pill that America needs to swallow. In effect, it will shift popular opinion strongly to one side or the other in favor of Democrats or Republicans, thus helping to change the gridlock thinking in Washington that’s been plaguing and abetting our national economic recovery.

A solid, unified voice will be absolutely necessary to dig ourselves out of this messy quagmire our economy remains in.

The impact on buying investment property

Property investors need to remember that there is never stasis in real estate (or other financial) markets. The volatility of recent years has created havoc, with housing values continuing to drop, though not so precipitously in the last year. So while Congress “fiddles” while our country “burns” in this rollercoaster economy, keep in mind that purchasing real estate for the mid-to-longer terms (three to four years at a minimum) will remain a smart investment choice. So by all means move ahead and buy investment property now.

Of course, this is provided you’ve run your numbers correctly, and show a positive cash flow on each property, as well as keep an adequate amount in reserves for each property in case of emergency overages. In so doing, you’ll be able to create a wonderful hedge against the current market fluctuations. With interest rates continuing to hold at record low levels, and with house prices at their lowest levels in almost a decade (about equal to 2003 value levels), it creates a marvelous opportunity for investors.

Back up your convictions with action

The hard part is to have the conviction to tune out the ever-grindingly bad economic news that’s disseminated every day. This bad news includes continually hearing about Europe’s debt woes,  the stock market volatility, and of course, the current national discourse on the supercommittee’s inability to do their job,  and reach an adequate compromise agreement.

If you can find the right rental real estate at a great price – by all means take the plunge and start building your long-term nest egg by buying investment property now.  In effect, go down deeper into that economic mountain in order to find the tunnel out to safety and long-term rewards.

 

photos courtesy of coseenow.net,  talkandpolitics.wordpress.com, hdwallpapers.in, ibtimes.com, 123rf.com, taylorinsuranceblog.com