High Equity Positions

High Equity Positions

This is part of a series that is being posted to my website because blogs read backwards and this item needs to read forward. You may read everything published to-date at http://www.segrestrealty.com Hit the “Investment Guidelines” link.

The conventional wisdom in real estate has always been to use leverage and buy as much property as possible with as little money as possible. In the past USA property has always increased in value and time can heal our mistakes. No more. Inflation and increasing property values (in relation to other things) may be a thing of the past.

It seems that,as much money as the governments need to print to cover the deficits and the stimulus packages, there should be inflation. Unfortunately this is only part of the equation. Inflation happens when too much money chases too few goods (assets). It is possible that the surplus of assets on the market will be temporary. One would think the too much money would be permanent. Not so. The too much money thing may not even exist.

The amount of money in circulation is measured by M1, M2 and M3. An economics class is not necessary to understand these classes. The main thing to understand is that money supply includes money owed. This money counts for more because it is counted twice. The bank considers the note as an asset. The borrower has the money. When banks don’t make loans or when people default on loans, money supply shrinks. Money supply also shrinks as stocks and bonds lose value.

The slower and smaller the economy, the less chance there is of obtaining a suitable rent for a property. The high equity owner remains flexible enough to reduce rent or sit on a vacant property when there is a high equity position.

David Segrest is a REALTOR® in Charlotte NC. His website is http://www.segrestrealty.com His email is david@segrestrealty.com He is also a contributor on Argentina to: http://realestatebloginternational.com/


M1, M2 and M3 are explained at : http://www.theshortrun.com/data/Financial/aggregates/msexplain.html