Appealing to Frightened Investors with Fact
In an Op-Ed piece in Friday’s NY Times, Warren Buffet (perhaps the most successful investor in America) writes: “I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds…Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”
It is known that Buffet had almost $45 Billion in cash a month ago, and has since spent over $35 Billion on American businesses because they are “cheap”.
I try to make the case for Santa Fe as a safe haven for investors, and believe that, as realtors, you are well served to approach your clients with this attitude. As investors are looking for a “safe” place for their cash, the story of Santa Fe real estate prices over a considerable period of time gives indication.
Since 1997, the median price of a home in Santa Fe has risen at a compounded rate of 7% per year. Taking into consideration the leverage factor of having to invest only 20%, less the borrowing costs, the return on investment is approximately 15% per year. Looking at, perhaps, a better metric, which is the increase in cost per square foot, the increase over the same period is approximately 4%. We have seen constant, moderate increases every year in that time period.
When dealing with investors, rattled by the loss of value in their portfolios and pondering the soundness of a real estate investment in Santa Fe, use financial reasoning that makes sense.
There is plenty of mortgage money available. The only downside in the present loan environment is that Fannie and Freddie now limit the number of properties financed to 4 (it used to be 10) which may limit the flexibility for investors.