16:27 PM, 13th August 2012, About 9 years ago 4
John D Rockefeller, the richest man who ever lived, once said “buy when there is blood in the streets”. Warren Buffet, no pauper himself, follows a similar strategy of buying when everyone else is selling and prices have crashed.
In fact it is a common link between the world’s richest people throughout history that they have invested in property and other assets at discount prices when the majority of people have sold.
History has shown us time and time again, that despite what the doom and gloom merchants proclaim in order to sell their newspapers, markets do bounce back and when they do those that bought at the right time see their wealth grow exponentially.
Take just one example – that of JP Getty who purchased the Hotel Pierre in New York, in the middle of The Great Depression, for the princely sum of $2,350,000. The economy recovered just a few years later and the market value of the hotel shot up to a massive $35,000,000 and that’s in the 1930’s!
Right now there is, metaphorically speaking, definitely blood in the streets. With some time and effort put into research we find repossessions through asset management companies, auctions and negotiating with private sellers who are selling their properties at hugely discounted prices from what they bought them at a few years ago.
Of course to some degree waiting for prices to rise is speculation (even if historically they have always done so over a reasonable period), so it is essential to buy properties that produce sufficient income after all expenses (including a contingency for voids and repairs) to provide positive cash flow every month.
We believe the best way to do that is find properties at the low end of the market which produce yields in excess of 10%. This gives ample room to cover any mortgage payments, allows you to build up a contingency fund for voids and repairs and should be generous enough to deal with any rise in interest rates.
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