Suffering from Real Estate Depression? Don’t feel ashamed!

By : Nick Marr

Real Estate Depression is a real thing, and here’s how it works: the market gets depressed with the economy in most cases. Sometimes an economic decline can actually increase the buying and selling of homes because their value decreases across the board; but sometimes the reverse effect is true. Here is something else: when a housing market in one area begins to decline, usually it is on the increase elsewhere. People, like power, money, weather patterns and migratory birds, tend to move in social groups. They don’t always realise this of course–how could they?–but it is the trend. One example from the Yanks across the pond comes from the Great Depression nearly a century ago, now. There was a huge loss of economy in the state of Oklahoma, prompting thousands to migrate toward California in an event historically called the “Dust bowl”. The upshot of the deal was that Oklahoma property values plummeted, while California property values began a steady rise until other economic factors stopped it.

The underlying message here is that profit can be acquired through economic loss, if the adroit individual knows where to look. It’s like making “put” investments in the stock market. A “put” investment is basically a bet that a certain stock is going to fail. Certainly it’s more complicated than that, but such abbreviation is all that’s needed for the further real estate example about to be explored. Say there’s a decline in the value of real estate in a local area–opportunity knocks! A property that was £200,000 is now £125,000—it’s seen quite the drop! Now the property is the same. Its actual value hasn’t decreased, just its perceived value. But what is “real estate”? Estates that are Real, rather than numerical or fiduciary.

So here’s what the plan is: a loan is taken out to pay off the cost of the house. Not a mortgage, a loan. If a mortgage isn’t paid, the house goes into foreclosure. However if a loan isn’t paid, the terms are re-negotiated. Also, it’s sometimes possible to get lower interest rates on loans that aren’t bank related. So a house is purchased for £125,000, and the buyer puts down £50,000 against the property, then goes to a bank for a £75,000 loan and buys the piece of real estate from the agency directly. From here, the individual rents the property out to at least three individuals, and themselves pay rent. If rent is £400, that’s £1600/month against the £75,000 outstanding loan. In about five years, the entire property is paid off–provided the interest rate is reasonable.

Once that property is paid off, the buyer turns around and sells it with the assumption it will pull in at least as much as it its initial purchasing price. If refurbishments have been done during the time the property was occupied, then it stands to have increased in value. Say around £20,000 in value have been added over the course of five years via refurbishment. The property sells for £145,000, and the buyer turns that money around directly into another property in a depressed market of equal or lesser value. The difference being, there is no loan involved in the second property, and it can either be used as a rental while the landlord lives below, or another stepping stone toward greater property acquisition.

There is no reason to be ashamed of real estate depression when the market fluctuates–in fact, this can be used to the advantage of an adroit individual. The market is without the control of regular citizens, but where some struggle, others can shine. Indeed, critical thinking toward real estate can help this. For more information on real estate and ways to beat the system, check out WIRE Consulting’s Real Estate Website.