Any real estate investor that has had to deal with actual meth lab residue, from environmental contamination and clean up to government confiscation or seizure, knows that a meth lab can be disastrous. Here is a very good discussion between Brian Williams at C-Span and Janet Travakoli on the financial crisis. Credit for finding it goes to Mike “Mish” Shedlock at one of the top economic blogs in the country.
What does this mean to real estate investors? Here’s my “3 and It’s Free” Insight to help investors make some money.
If the Financial Accounting Standards Board (FASB) rules were not suspended regarding “mark to market” (instituted after the Enron implosion where people were prosecuted and sent to jail), our financial institutions would now be bankrupt. Bottom line is that our banking industry is “stressed” to say the least. Interest rates are at their lowest and if you can, you should consider financing your investments before the Federal Reserve raises rates.
One benefit of Inflation. The Fed’s ability to borrow money into existence without constraint will cause inflation. What this means for real estate debt is that loans made in today’s dollars will be worth-less in the future. In other words, assuming you have income tied to inflation, you will be paying off fixed rate, long term debt with inflated dollars. This is great for real estate investors! (CAUTION – be careful that your debt is not too high, your house is rentable and in an area that people will want to live and that you will be able to raise rent, and have some reserves to pay taxes, insurance and utilities if necessary to bridge economic shocks)
Tighter credit requirements and the lack of credit in general means that more renters will be in need of housing. It also means that you can offer owner financing on more favorable terms or perhaps get a few more dollars for an option to buy. One tip if you use options in an inflationary environment (and this could be worth big bucks to you!!) is to use future purchase prices in inflation adjusted terms. See your attorney for exact language but make sure you tie the purchase price to some inflation factor such as the consumer price index including food and energy. You’ll be glad you did!!
