Many financial markets have undergone some amount of innovation in regard to the financial vehicles available to the participants. Options or derivative financial instruments have been introduced and have taken hold. Moreover, investors are able to purchase a contract with the option of buying or selling an underlying equity product, debt instrument or commodity. Credit default swaps allow insurance to be purchased against the default of financial instruments such as mortgage derivatives. Aggregate securities, representing pools of collateral based contracts, are also a fairly recent addition. These leverage based instruments have created many rich and powerful sub-markets to exploit market inefficiencies.
A large scale bet made by individuals within these markets in the past decade consisted of two key factors. First, the housing market was larger than the general business market. Secondly, consumers were given a lower barrier for accessing capital; this was done with the trust they would find out their best interest. It was discovered that consumers generally bet on the success of their own houses in securing the additional income necessary in complying with the capital lending terms. When the end of the terms to secure more income arrived for people all over the world, seemingly inadvertently orchestrated, it was found that many of those bets did not pay off. Still in the same position, two years of interest in deferring equity had not payed off for many.
With so many failures at one time, the air was taken out of the housing market. This demonstrated how quickly the equity of confidence could react to market occurrences. It shook the foundation of business as a whole, as a sweeping message of the tightening capital markets took hold in people’s minds. People stopped spending, business stalled, equity was usurped by the highly leveraged real estate market and the economy tumbled as many individuals were displaced from their current situation. Now, seemingly recovered from this, many people are wondering if real estate continues to be a market which should draw faith.
Given that the tides of the capital markets can never be predicted with any amount of consistency, almost as if doing so gives heed to tempting fate, other factors should be looked at in search of substantive attributes. It is certain that if capital was secured on terms that cannot be met, that any underlying asset will most likely be forfeited at an additional cost of working the terms of the default. There is no escaping this, and to attribute this to investing in real estate would not do justice. However, another factor exists of freeing the equity built within an investment in time. This should be viewed more as a possible option rather than a requisite necessity. If this is a larger factor within the consideration, it is best to find markets other than real estate to depend upon. Real estate is not known for being the most liquid market.
Beyond these considerations, there is that of incoming producing properties. Given that capital requirements have been met, ensuring the continued possession of the property, the possibility of freeing equity within the property is an option if it makes sense to do so. Most properties, and especially well purchased ones, serve as income producing property. This can be by means of rental for others to live in, utilizing it as a short term rental/stay, aiming for a self-sufficient property (eliminating expenses and even generating a profit in some cases), allowing people to use rooms as an “away from home, home office” and many other possibilities. This was the intrinsic interest in real estate in the first place: How to employ land to the best advantage. It wasn’t always a bet upon faith in the real estate market.
Real estate has resulted in the generation of much wealth. It has also usurped the fortunes of many. Used as a get rich quick scheme, real estate investing is a short ride for those that over-extend themselves, to be found out that their judgment could not be trusted. Secured in a seemingly elderly intrinsic interest though, being the best employment of the land given an excess of capital that can be employed within markets with less liquidity, real estate is still as good of a market as it has and will be.