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Property Investment – What Future For the Biggest Bubble of All Time?

The Economist magazine published a special report in this months issue entitled “House Prices … After The Fall”. Some might call it pessimistic, alarmist, nonsense or worse but only the foolish would choose to ignore the research that comes out of a think-tank with the kind of resources that this highly respected publication has. Though as a caveat I might add that I am living in Ireland, the country that a recent Economist study declared the best place in the world to live and I could find several dozen reasons to dispute this … but that’s another story!

What the Economist tells us is nothing that we don’t already know. An obsessive interest in property by investors, prompted by low interest rates and a loss of faith in equities, has fuelled a massive ‘bubble’ in the property market, the largest house price boom ever witnessed. Perhaps what we didn’t know is this bubble exceeds by 20%, the global stock market bubble of the 1990′s and we all know what happened there! It burst, as all bubbles do when under excess pressure.

So what are the predictions for the future and what implications might they have for those considering an investment in property now? Using information gathered from lending institutions, estate agents and national statistics, the Economist has compiled a set of global house prices indices covering 20 countries from 2002 to date. The figures indicate that house prices are seriously over valued in many countries including Spain, Ireland and France, fuelled mainly by speculative demand. America, though heating up a little later is following the same path. Using the current slow down in Australia as an example, and Japan and Germany’s negative house price growth, predictions are that with even a flattening off of the market rather than a total collapse, recession is inevitable since people will be far less inclined or unable to release capital on their homes for spending in the economy. So even a ‘soft-landing’ will cause significant economic pain! In addition, massively inflated prices that are disproportionate to income spells bad news, especially for landlords. In Ireland, for example, rental yields have fallen to below 3%, well below current mortgage rates.

Significantly, all the countries in the Economist’s house price index are well developed established economies. The report gives no mention to the emerging economies in Central and Eastern Europe. If, as indicated the housing market in Britain, Ireland and the Netherlands is starting to cool, this will have an immediate impact on the property market in these economies as investors chase better returns. Already EUR1 billion of Ireland’s anticipated EUR6 billion of real estate investment funds are expected to flow to countries outside the EU-15.

It seems the only option now left for the canny property investor is to play the cat and mouse game, chasing newer markets that are experiencing similar conditions for growth and expansion that led the older ‘burnt out’ markets to their success. But with this comes the element of risk. Economies are delicate, unpredictable systems that don’t always fulfil the expectations of players within them.

For those who prefer to shy away from the risks of property investment, preferring to sit it out while the bubble follows its course, there is another option. Chateaux Lafite 2003 will yield creative investors a 13% tax-free rise over 11 months and if the market crashes, you can always drink it!

Buying Platinum Jewelry As an Investment

Investing in a precious metal like platinum can be a good long-term hedge against the volatility of the stock market, and there are many ways to invest in it. One of the best ways is to buy jewelry made from pure platinum. This allows you to hold a valuable commodity as well as wear a beautiful piece of jewelry – sort of like having your cake and eating it too!

Here are some great reasons to buy platinum jewelry as an investment:

  • The strength of platinum allows jewelers to make quite intricate, yet extremely durable, pieces without mixing in other metals. Thus, you can have a piece that is practical both as jewelry and as a bullion-type investment.
  • Platinum is about 30 times more rare than gold, yet is usually valued in the same general price range. Since it is so rare and so useful, many people believe that platinum could drastically increase in value in the coming years.
  • Platinum is stronger and more durable than either silver or white gold, and is impervious to rust or tarnish, and so is a great alternative to these metals as jewelry.
  • Platinum is important in the auto industry, for use in anti-pollution devices. As environmental regulations get stricter over the years, the value of platinum should continue to rise. And as emerging markets like China and India continue their explosive growth (car sales in China grew by more than 50% in 2009), the demand for platinum will continue to grow as well. All these factors point to a steady increase in the value of platinum jewelry in the coming years.

Financing Your Business With Vendors

Vendors are critical partners having the ability to seriously help or hinder your business. A good relationship with a vendor will help with cash flow, assist in quality service with your customers, and help you reduce the struggles of managing inventory. A bad relationship with a vendor can cause several headaches including seriously hurting the lifeblood of your business, your cash flow. Most business buyers never consider partnering with their vendors to finance their purchase. Here are a few ideas on how to work with vendors in financing a new acquisition.

1. Extend your terms – If you purchase a business that has a heavy need to work with vendors you maybe able to get your vendors to extend your terms after your acquisition. This can allow your business the ability to free up critical cash flow. Don’t be fooled into thinking that an increase in cash flow will pay for you acquisition. It may help with the temporary lull in business that naturally occurs after the change on ownership. One of my students got a primary vendor to extend his terms from net 30 to a one year, no payment no interest relationship. This worked well for my student and the vendor had established a relationship that can potentially last a lifetime.

2. Sharing a letter of credit – Depending on what type of vendor you have (and your relationship with them) occasionally vendors will be willing to extend or share a letter of credit with a client to help them. For example, a construction company that needs materials such as granite countertops maybe able to go to a granite wholesaler and in lieu of a profit they could share a portion of their letter of credit to finance a portion of the construction. Obviously the vendor would be compensated by future business and a spread on the letter of credit.

3. Trade services for materials or like-kind services- A general contractor could offer to trade services for materials. A grocery store could share space for warehousing with a food supplier in lieu of product. The possibilities are endless.

4. Equity investors – Vendors frequently become squeamish of investing in clients because there can be a change in the perception of the relationship. I think that this can be a perfect marriage between two businesses if it is done correctly and with consideration. For example, a struggling business has past due debt to a smaller vendor. A new party could acquire the business and share a portion of the stock in the company to resolve the past due debt. Vendors are not in the habit of investing in their clients; however there can be a time and a place where it is necessary for the survival of all parties.

5. Leaseback strategies- This is a strategy you can use with equipment vendors. An existing business owns $200,000 in equipment. You sell the equipment to the equipment vendor and in turn leaseback to you. Consequently you free up cash to assist in your business purchase.