Some have expressed a concern of a bubble. In a previous post I spoke of a Cap Rate compression and the opportunity for the recognition that a bubble in fact currently exists for income producing properties. The bubble is real. A real estate bubble burst could happen.
Signs of a Real Estate Bubble Burst
A real estate bubble is caused by:
- Inexpensive mortgage loans (lowest interest rates in my 28years of real estate experience)
- Substantial uncertainty of the stock market (which has driven people into a tangible, quality investment)
- Recovery from the recession of the last 4-5 years (tenant strength has improved greatly)
- Influx of foreign capital. The US is still recognized as the safe haven in the world of financial unrest.
- The most attractive taxation systems in the world (while taxes seem high for those of us paying them, they are still very attractive compared to other free market countries).
How do you avoid being financially injured if the air starts to go out of the bubble?
- Build a safety reserve. In the event that you experience hard times the biggest losers will be the ones who are forced to sell.
- Evaluate ways of increasing incomes and decreasing operating expenses, both of which make you a stronger survivor.
- Refinance to de-finance: if you have a balloon payment or a interest rate adjustment date coming up in the near future, consider refinancing and particularly, de-financing.
Takeaway: In summary, put yourself in a position where you will not have to sell if the real estate bubble bursts. Again, only those who sell are the big losers! Give me a call. I am an expert at evaluating an investor’s portfolio and advising them how to generate optimum value and optimum cash flow; identifying risk areas of concern; and generating overall financial stability.
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