| The comments below are quoted from a recent | | | | or "good" economy.In good times, such as we've |
| speech by Ben Bernanke, a member of the | | | | had the past 8 years, retailing or flipping for cash |
| Federal Reserve Board of Governors..."Looking | | | | was the hot ticket, due to high demand for |
| forward, I am sure that the Committee will | | | | housing and the ability to sell properties quickly. In |
| continue to watch the oil | | | | recessionary times, higher interest rates and |
| situation carefully. However, future | | | | lower housing sales fuel more seller financing, and |
| monetary-policy choices will not be closely linked | | | | rental properties flourish. Of course there are |
| to the behavior of oil prices per se. Rather, they | | | | always exceptions to the rule, but generally |
| will depend on what the incoming data, taken as a | | | | speaking this is the case.As interest rates got |
| whole, say about prospects for inflation and the | | | | lower, rates of return for traditional investment |
| strength | | | | vehicles went lower and lower. The result? More |
| of the expansion. Generally, I expect those data | | | | and more money poured into real estate lending. |
| to suggest that the removal of policy | | | | Hard money and other types of conventional real |
| accommodation can proceed at a 'measured' | | | | estate financing programs expanded drastically, |
| pace. However, as always, the actual course | | | | making millions of dollars in new funds available for |
| of policy will depend on the evidence, including, of | | | | real estate investors.As housing sales reached |
| course, what we learn about how oil prices are | | | | record levels, home sellers began seeing a boom |
| affecting the economy."In short, the Federal | | | | in housing prices. It has truly been a sellers |
| Reserve knows that there will be an impact. But | | | | market since rates fell below 7%. What happened |
| no one knows how big and how fast. During the | | | | to |
| oil embargo of the 1970's gasoline prices doubled | | | | investment property? During the past 5 years of |
| several times over a matter of months. The | | | | an investing bonanza in Atlanta,GA prices for |
| effect was dramatic and sudden. It was difficult | | | | investment properties have doubled and even |
| to adjust, because things were happening so | | | | tripled. 3 bedroom 1 bath junkers were selling in |
| fast.This time around, it appears that the price | | | | 1999 for as little as $25,000, even in liveable |
| climb will be gradual and steady, thus allowing the | | | | condition. Today, that same type house regularly |
| Federal Reserve and the government to make | | | | sells for $65,000 (or more) before repairs.Going |
| adjustments as they go, by examining economic | | | | Forward:Rising rates will have a positive effect for |
| data on a monthly basis. At least that is what | | | | investors, by slowing housing sales even further. |
| they are hoping for. | | | | As sellers get fewer solid offers property prices |
| They know that the economic climate is | | | | will get softer. Rising rates could fuel more short |
| changing, but they are hoping that it will be slow | | | | selling of foreclosed properties, and this trend is |
| enough to control.This week as I contemplated | | | | likely developing now.Foreclosures may eventually |
| my own reaction to the changing economic | | | | get to levels not seen since the late 1980's, due |
| environment, I felt compelled to encourage you to | | | | to high levels of mortgage debt among |
| give some serious consideration to your personal | | | | homeowners, who in many cases, have |
| economic circumstances. If you have a large | | | | mortgaged all of their equity to pay other bills.If |
| percentage of debt relative to your income, you | | | | rates get above 7%, you can dust off your |
| should take steps now to eliminate as much of it | | | | creative financing books, as seller financing will |
| as possible. Prepare yourself so that you will be | | | | increase. Rising rates mean rising monthly |
| protected against unexpected economic | | | | payments. This will eliminate the borderline buyers |
| upheaval.Being debt free, or having a very low | | | | from the housing market. They will start moving |
| debt to income ratio is the best way to protect | | | | back |
| yourself in an unpredictable and volatile world. As | | | | into apartments and rental houses. Vacancies will |
| we learned on September 11, 2001 | | | | decline, rental rates will increase.If rental rates |
| things can change dramatically in only a few | | | | increase, cash flows will increase. Rental property |
| hours. If you put it off, you may not have | | | | will be back in style with investors who abandoned |
| enough time to get it done.The average person | | | | rentals and focused on selling for fast cash in a |
| needs 4 to 5 years to pay off their | | | | hot market.Companies that sell investment |
| outstanding personal debt, not counting their | | | | property can expect growing demand for rental |
| home. In today's world, it will pay to get started | | | | grade properties. While it is still very early in the |
| now. I have made it my primary objective to pay | | | | cycle, I believe this shift is already under |
| off my personal debt over | | | | way.Economic recessions are boom times for |
| the next year or two.If you currently own rental | | | | smart investors who are positioned to take |
| properties, be sure you have cash reserves for | | | | advantage of the situation. I am not predicting a |
| future emergencies.But how might all this | | | | recession per se' but rising oil prices |
| economic stuff affect real estate investing?The | | | | and interest rates will eventually have a big |
| interesting thing about real estate investing is that | | | | effect on housing.Be ready to take advantage |
| even bad economic conditions tend to have a | | | | when the opportunity comes. |
| silver lining. There is a cause and effect | | | | You have plenty of time to plan for it now.Donna |
| relationship at work in any | | | | Robinson is a real estate investor, author and |
| given economy, whether it is considered a "bad" | | | | consultant in Atlanta, GA. |