As an investor, asset shortage is a good thing, especially those who already have a nice chunk of the asset in question residing in your portfolio. What causes a shortage in the first place? Generally speaking, it exists when there is a limited supply of something and demand for it increases faster than the supply can be expand. One might understand how this idea applies particularly well to real estate. After all, unlike the stocks and bonds traded on Wall Street, every bit of it that we’ll ever have is already here. In other words, they aren’t making any new land and the last bit of undiscovered country on earth was exposed some time ago.
Theoretically, a company could increase the number of shares it sells to infinity, thus the danger of an eventual eroding of value is always present. The rules of the game are substantially different when it comes to income property investing: a continually increasing number of people vying for the same amount of land and housing.
In light of what we just mentioned, the present housing market might seem to not make any sense. Prices are low. Nobody’s buying. What the heck is going on? The reality is that the recent foreclosure crisis brought on a monumental shift in the economic foundation of how houses are bought and sold in
this country. Before the foreclosure mess hit, people were able to walk into a mortgage only putting down 5 percent as collateral, sometimes less. As the financial housing disaster unraveled, banks went into lockdown mode and began requiring upwards of 25 percent down before they would make a loan.
This reality change in the lending industry effectively eliminated a large pool of potential buyers from securing their piece of the American Dream – a home. Since they can’t afford the buy-in, they’re forced into renting, which is great news for the landlords.
The bottom line is that, though real estate doesn’t seem to be ready to suffer any sort of asset shortage, that eventuality is simply a matter of time. After all, as Jason Hartman, Young Wealth founder, likes to say, always invest in universal need. If there’s one demand that can be relied upon to always increase in the long run, it’s the need for housing – a place to sleep at night.
The important thing to remember right now is that, even though there is no asset shortage in property presently, it’s coming. Get ready to jump in for a chance to generate impressive profits (Top image: Flickr | Images_of_Money).
The Young Wealth Team