What Causes A Perfect Storm?
Well that’s the million dollar question, isn’t it? real estate
What I deem a perfect storm is a set of circumstances that occur once, maybe twice in a lifetime that offers unparalleled opportunity to purchase undervalued real estate at unnaturally depressed prices. There was one similar opportunity in the late 1980s, early 1990s when the RTC (Resolution Trust Corporation – a government-run entity used to liquidate primarily foreclosed commercial assets) had one of the biggest fire-sales of commercial real estate in US history. This was a time that fortunes were made in the acquisition of overly distressed real estate assets. At that time, the market collapse was caused by 3 main factors (1) change in US tax laws affecting real estate investors, (2) Overbuilding, (3) The Savings & Loan banking scandal and fraudulent activity of mortgage lenders and appraisers.
So what’s causing the Perfect Storm Today?
(1) Massive residential property speculation in 2003-2006
(2) Too much credit available to purchase and finance real estate which was overused by lenders and uncreditworthy borrowers
(3) The current overall US market decline/recession that is spreading into a global crisis
(4) Current lack of funds for qualified borrowers
(5) Current oversupply of properties for sale
As you can see, there are 2 stages that follow one after another that lead to the creation of a Perfect Storm and opportunity to purchase real estate at incredible values – The Housing Speculation or Run-Up phase and the Market Collapse. We will examine each of these phases so you are more informed on what has led us to this perfect point in time to invest in real estate.
But first, we need to examine the most important issue a real estate investor must evaluate when choosing where and when to purchase a real estate investment – LOCATION.