On the 17th of September, the Dow plunged 450 points, in good part due to the announcement of the government takeover of the insurance giant AIG. Of course, this is just another domino falling as the mortgage crisis plays out. Some financial giants have fallen, and there may well be a few more.
Through all of this chaos, all of the charts showing home price indexes tumbling, and media clamoring to tell us that even good credit will not guarantee a home loan today, there is a group of investors out there who are sitting back sipping their coffee with a smile on their face. They aren’t financial giants, nor are they necessarily multi-millionaires. They are smart real estate investors collecting rents on properties purchased without excessive leverage and with research that turned up a bargain.
• AIG fails … but these investors’ tenants aren’t moving out because they still have jobs and need a place to live.
• Merrill Lynch gets purchased by Bank of America … but these investors just go to the bank with their rent deposits.
• Home prices have dropped, look like they’re stabilizing, but there is hesitation to call an end to declines … but these investors purchased with sensible leverage in the past, and they are still realizing positive cash flow.
• There is fear of inflation … but these investors aren’t concerned. Their rents will probably increase with the inflation rate, and likely their property values as well.
• Mortgages are harder to get, and next to impossible with credit issues … however, our investors are just getting higher rents due to the increased demand for quality rental homes by those who lost their homes or can’t buy due to mortgage issues.
Do we see a pattern here? When the Dow plunges, real dollars are lost, including retiree monthly incomes. However, the successful real estate investor, realizing that their properties may have lost value recently, still gets the same rent checks each month. And, since they used leverage intelligently, they can sit back and wait for the inevitable return to normal annual real estate appreciation trends.
If this trying period of mortgage chaos and federal bailouts tells us anything, it’s that investment in real estate has always been a proven wealth-building strategy. And, when things get really bad, some are just pausing in their net worth growth. They’ll be right back to normal much sooner than the Wall Street tycoons.