Wednesday, December 03, 2008

New Paradigm Skepticism
I get a smirk when I hear talk of new paradigms in investing. Fundamentals don't change, business cycles and asset valuations change. Yesterday's Wall Street Journal had an article on Goldman Sachs' Whitehall real estate funds and their losses. While the article did not state that real estate was going to experience a new paradigm, I got the sense that the article was implying that real estate investing had changed. It has not. Real estate investing has always been a function of two things - income and debt. I know the old saying - location, location, location - but even a property in a good location needs quality tenants paying consistent rent, which will allow an investor to get a favorable mortgage. Credit is tight today and many tenants are feeling the impact of the recession. But credit will return and the business cycle will improve. This will make real estate investments attractive again. I would not bet against Goldman Sachs. When someone talks of new investment paradigms its time to start buying or selling, which ever is opposite of the so called new paradigm.

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