series of messages has looked at whether or not there is
estate bubble and has examined why some people think property prices
are too high and others do not.
The real point however should not be if there is a bubble or not.
Instead let’s look at how to profit regardless.
Here are some important points this series has reviewed.
#1: The real estate market is currently active. Many feel prices are
too high. Many others do not.
#2: Many opinions have suggested that there is not a real estate
market, but many markets. Some are priced too high. Others are priced
too low and offer good value.
#3: There are good values even in the high priced markets.
#4: Property markets are not likely to crash quickly, but are more
likely to drift down or stagnate.
#5: There are many forces that can push property prices
#6: No one can predict exactly when prices will drop.
#7: High priced markets can in some cases create extra
low price markets.
Understanding these facts can help us find ways to invest
Approach #1: Wait for prices to fall. Warren Buffet thinks
He believes there is a bubble in some areas and sees
a way to make
money from this. He wrote:
"A lot of the psychological well being of the American public comes
from how well they've done with their house over the years. If indeed
there's been a bubble, and it's pricked at some point, the net effect
on Berkshire might well be positive because the company's financial
strength would allow it to buy real-estate-related businesses at
This means keep your powder dry. Remain liquid.
I really cashed in this way clear back in the 70s.In 1970 I lived in
London for a year, then moved to Hong Kong. During that time I also
maintained a home outside of San Francisco.
This was a time of great US debt, a falling US dollar and inflation.
My homes in California and in Hong Kong appreciated greatly. Seven
years later in 1976, when I moved from Hong Kong back to London, I
noticed that London real estate was priced about the same as it had
been in 1970. This puzzled me. Why had London property prices remained
flat despite inflation?
On investigation, I learned that there had been a huge real estate
crash in 1970 continuing to dampen real estate prices six years later
despite the rampant global inflation. At the same time, the British
pound collapsed suddenly (over 35%) versus the US dollar from 2.4
dollars per pound to a new all time low of 1.52 dollars per pound. To
my way of thinking London houses, which I thought were already very
cheap by world standards, just became 35% cheaper.
I could not resist, started property shopping and bought an old five
bedroom house in Bedford Park in west London. I converted $15,200 to
make a 10,000 pound down payment and took a 25,000 pound loan to meet
the 35,000 pound asking price I had negotiated (about US$53,250).
A couple of years later, the pound rose (almost 50%) to the US dollar
and I made extra currency as well as real estate profits.
First, I had been right. London property had been underpriced. I was
able to sell the house for 115,000 Pounds. I made a profit of 80,000
pounds. But the currency change helped enormously too. The pound had
risen from 1.52 US dollars per pound back to over 2.2 dollars per
pound. My 80,000 pound profit was not worth US$121,600 (value at the
1.52 rate) but was worth $176,000. I earned $54,400 extra profit
because of currency moves!
There is much we can learn from this, about real money, international
purchasing power and how government debt affects currencies. This
study is a classic example of how real money moves versus currencies
that have been adulterated by governments.
In this case, property was the real money. Residential property is a
classic hedge in times of inflation and currency destruction because
it always offers a real service of value, i.e. a home for one to live.
In the study, this real money was first lowered by a local real estate
crash. Most British real estate buyers were not aware how inflation
had pushed real estate prices up in other countries. British
businesses could operate cheaper than elsewhere because it cost less
to house employees. This gave Britain an unfair advantage. Their low
real estate prices were not caused because there was a greater supply
of British land nor were British builders more efficient nor were
British building materials more abundant. British homes were cheaper
only because investors elsewhere had not yet seen the discrepancy.
Then prices really became cheaper when the pound crashed. Overseas
buyers (like myself) caught onto the cheap prices and Americans,
Japanese and Arabs began buying London homes. Prices soared. So much
money flowed into Britain that the pound rose.
As is usually the case the pound had been oversold at its bottom, so
that it rose dramatically. The results were wonderful.
To take advantage of this approach watch areas such as those below
where prices have risen steeply:
The Economist house price index shows that from 1997 to 2005 prices
are up in the following areas:
244% in South Africa
192% in Ireland
154% in Britain
145 in Spain
114% in Australia
87% in France
84% in Sweden
76% in the Netherlands
73% in the U.S.
Remember that within each of these overpriced markets there are still
good values. We have taken advantage of this approach in Naples where
we purchased high value condos we can use that are surrounded by much
more expensive properties.
A second approach is to buy where prices are not so high or where they
have fallen. The Economist house price index shows some of these areas
Hong Kong –43%
New Zealand 66%
These may be countries of greater opportunity along with depressed
areas within the faster rising countries.
We have taken advantage of this approach in both Ashe County and
Ecuador. Ashe County prices are vastly depressed compared to
surrounding areas. After extensive research, we found high value
property we loved and could use in our business. DETAILS
The same is true in Ecuador. Low land and construction prices offer
high value compared to property of similar utility in the US. We spent
years researching and inspecting property to find acreage we loved and
could use in our business.
Right now we continue to buy property there. This is why we have added
another seminar in Quito this November.
See more at Gary's archives
Finally use the rules of PIEC when you invest in property:
1. Look for property you like.
2. Realize that money isn't everything.
3. Work only with people you like.
4. Buy utility, not property.
5. Invest only in what you understand.
6. Don't over diversify.
7. Keep looking for new opportunities.
8. Buy property you plan to keep for life.
9. Look for property that is available at a good price.
Take these steps and every economic condition, boom or bust, will
create opportunity for you. Until next message may all your, good
P.S. Whether boom or bust, there will be opportunity. Those who look
for it and know how to process information correctly can gain. This is
why we are conducting a special course, "Super Thinking - Super Learning” to
help you unlock the power of your
For details, or to enroll