The Changing Face of Your Real Estate Investment Strategy
The bad economic news continues to dominate the newspapers and other media. Just this morning the New York Times had a front page story on the arrest of two fund managers at Bear Stearns for deceiving their clients into investing in subprime mortgage-backed securities. Our dollar is at a new low against the Euro and other currencies while the price of oil continues to climb. It appears to me that all of us must now understand that our way of life is undergoing a drastic change.
How do Americans invest, especially in real estate, when there is such uncertainty in the country? While the New York market continues to remain remarkably strong because of foreign investment due to a falling dollar against other currencies, the rest of the country is still experiencing weakness and in some cases is still declining in value.
The way to form an investment strategy is to first understand the emerging fundamental change of the United States’ position in relation to the rest of the world. While our economy continues to be the largest and most integrated in the world, in the future it will not be able to bully others in to doing its bidding by sheer force of will. At present, because of our government’s failure of having anything resembling an energy policy for the past 35 years, there is a colossal transfer of wealth from the U.S. to oil producing countries. Historically, we have been fortunate that those countries have invested their profits in America since our economic growth was more consistent and predictable. Our financial markets were the most stable as well. Neither is the case any longer as witnessed by the new investment construction in Dubai and other places.
With the price of oil at historic high levels, the U.S. can no longer afford to have an SUV in every garage and homes sprawled miles from jobs, schools and stores. Unfortunately, many Americans are slow to embrace change that cramps our lifestyle….for us, bigger has always been better in everything from cars, to homes, to RVs, to jewelry. The American dream must change to a more affordable and sustainable one. Therefore, real estate continues to offer strong investment opportunities, but I would advise you to consider energy efficiency, proximity to employment, and size when considering which home will have the most appreciation.
The United States and its citizens must truly learn to live and work in a global economy. Even real estate, which has usually thought of as impacted more by local issues, is now more and more tied to outside factors. When putting your money down on a property, think broadly about domestic and global economic fundamentals and carefully about your personal financial situation to be sure you can manage the costs associated with the property. Real estate will continue to be an important component in individual financial and investment portfolios, but purchasing decisions must be evaluated differently than they have been in the past. By making that careful evaluation, you will ensure the future health of your portfolio.
