When you see a news bulletin forecasting an imminent economic crisis or see an article describing the credit crunch, what is the initial thought that you have regarding money? For the ‘average’ person it is likely to be to identify possible ways to reduce their yearly expenses. This would be understandable, as fear is a powerful emotion for determining how and where we spend our hard-earned money.
Homeowners decide that it is a bad time to sell their home to purchaselook for a new one, car owners decide that it is not a good time to consider a new vehicle, parents vow not to spend a fortune on Christmas gifts for their children. Basically, demands for a number of products and services decline.
For example, when fewer individuals are looking to buy houses, the cost of the average home goes down. What happens to the lettings industry? The irony is that this is a perfect time to buy a property if you have capital and do not need to sell your home to buy the property.
Those people with money to invest are delighted by the current economic 'crisis'! They can buy rental properties at a much reduced price and there is a greater likelihood that they will find tenants. Hence, they are able to capitalise greatly from the changes in the economy.
Banks have suffered as a result of the economy and many have needed financial backing from the government, but the government will capitalise from these arrangements. They will own shares in the banks and the economic situation will bounce back over time. As an example, in November 2008 the government acquired 57.9% of the Royal Bank of Scotland in the UK.
Usually, whilst one group of people is struggling, another group is capitalising. When retail sales fall, direct sales grow, when the property market drops, the rental market benefits. When banks struggle, the government capitalises. The goal is to be on the correct side of the equation!
Now I know what you may be thinking: “I don’t have capital to invest". A recent report on the BBC news website (22nd January 2009), detailed a study from two leading US economists. They implied that by studding the outcome of 18 similar financial events gloabally, that it could be as long as 6 years before property prices reach an all time low and 3 years for the stock market to reach its lowest point. These are only the findings of one study, but if you take ownership of your financial situation now, you may be in a position to invest within the next 3 to 6 years. This may be the last chance you get during your working career to benefit from these economic trends!