Scary Monsters Fact or Fiction

[Maximillion]

Hi All:

I know the last REIN meeting was all about ignoring, or at least taking with a grain of salt, the effect that the sub-prime crisis will have on real estate, but...it does get a little scary when you have colleagues who are selling all their real estate awaiting problems to hit the Canadian Market. Even if the subprime is not as huge a deal as the media is claiming, if people are beginning to get in fear about their investments both stocks and real estate how can that not have a huge impact on our economy. I bought property in Cambridge with a negative cashflow with equity in mind. But...what if I have to ride out a recession that could be several years before I break even and then another few years for my property to rise in prices. Not wanting to be doom and gloomy but I lost 1/3 of my mutual fund investments in the 90`s and trying this time to have some foresight. Is it better to wait and see how much prices are going to drop before getting back into the market? Would appreciate some insight into this especially from some veteran investors.

Thanks Vivian Clement

 

[DonCampbell]

Hi,

The key phrase I see in your post is "I bought Negative Cash Flow Hoping For Equity." Unfortunately, in a rent controlled region (such as yours) that would be more of a speculative buy (instead of an investment) because it would be next to impossible to build a portfolio that doesn`t have eventual cash flow.

In markets where cash flow is tight, properties should only be bought if there is cash-flow soon in the plan (i.e the current landlord has kept the rent too low and you can raise it). Every long term negative cash flow property, especially in a market that is only expected to increase in value 6% and rents aroudn 1.5% (government decreed) becomes an cash-alligator, constantly eating up your profits each month, discouraging you from buying more and when you go to get financing in the future on other properties, your negative cash flow will affect your ability to get the bank to say YES.

As we said, the sub-prime issue is going to get much deeper before it gets better buying cash flow properties wil lbe the way to get into the market, weather the `media storm` and come out looking like a genius.

 

[invst4profit]

Purchasing of properties without positive cash flow and hoping for equity is as Don says speculation not investing. Those individules will be the hardest hit if there is a recession. Speculators need to know there comfort zone and expect some sleepless nights waiting for the market to drop even if it never does drop.
Everyone needs to find there zone.