A question we're all hearing a lot these days is: "Is the real estate bubble going to burst?" All the financial pundits are eager to give their opinion, and it's often one of doom and gloom. It seems that some reporters and even some analysts are comparing today's real estate market with the rise and fall of dotcoms in the late 1990s. It is not an apples-to-apples comparison. Real estate markets are local. The general market in one area can be booming while a few hundred miles away, the market is flat or declining. And there are strategies for investing in each type of market--growing, flat, declining--that will allow you to generate cash flow and build wealth no matter where you are. Are the booming markets due for a bust? I don't think so. At the worst, we can expect to see the rate of valuation increase slow down in some areas, but we aren't likely to see values decline in most areas--and if we do, it will not be a significant amount. This shouldn't have a significant impact on investors who own income-producing real estate. Here's an example to explain why: Let's say you own a four-unit apartment building. For the last three years, the property's value has been increasing at 10-15 percent per year, then suddenly it drops to an appreciation rate of just 3 percent. Are you going to reduce your rents just because your appreciation rate has changed? Certainly not. Your rents will remain in line with the market and will be generating positive cash flow while you continue to build equity in the property. The real estate market, just like the overall economy, is subject to cycles. Savvy real estate investors understand those cycles and know how to deal with them. People are always going to need places to live and work. That means as long as there are people on this planet, there will be opportunities in real estate. Don't worry about the "real estate bubble" -- instead, focus on using proven investment strategies that will allow you to make money and build wealth in any market. |
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