Can I really cash the crash?

By Yogesh Chabria

 

I was speaking to someone who entered the realty space a few years ago. He has invested over Rs 700 crore into developing a township in Southern India. A large part of the funding has been done by banks and financial institutions. He entered the real estate space because he saw it booming and every Tarun, Dinesh and Harjeet were running after it. It was a boom time.

 

Now, when the project started, he was expecting revenues of over Rs 2500 crore. He assumed he could sell each square foot for Rs 5000. I remember telling him more than a year ago, how the real estate prices were overvalued and the rates will fall and how it would be best for him to reduce prices and sell.

 

That time he was making a decent profit and could have easily sold his stock for Rs 2500 per square foot. This means he would have still got back Rs 1250 crore on an investment of Rs 700 crores. This was good money but he didn't exit that time.

 

Today he is unable to sell even at Rs 2500 per square foot and is not only stuck with huge inventory. Not just that, he also has to repay banks and financial institutions. Buyers will not buy property even at Rs 2500 per square foot, because they feel it will go down even further. Even if interest rates go down, and the government announces stimulus packages people will not buy if they feel they can get a better deal by waiting. Most people I speak to are willing to wait even for 1to 2 years and live on rent.

 

I have suggested to him to sell now, even if he just recovers the cost, because if he waits any longer there could be a lot more stock coming in from several builders and he might not even be able to recover his cost. I see a lot of builders going bust and this could mean more trouble. Instead if he exits now, he will have a lot of cash which can be used to buy cheap assets. And he won't have to pay interest on the loans he has taken.

 

Today land prices have fallen from their peaks and if he has cash, he can buy this land for the future. I know of so many people, who are willing to sell several acres of land in prime areas across the country at a flat 50 per cent discount to what they were asking a year ago.

 

He can actually make cash out of this crash, if he takes his cash of the table and uses it to buy things even cheaper. No crisis lasts forever and anyone who sees a long term picture can cash the crash! In fact boom times are the times that cause most people to go bust. Situations like depression and crashes are the best time to create wealth.

 

A crash is the best time to create wealth and I am not just saying it for the sake of it but based on my personal experience. The sad part is that, most people discover opportunities they could have benefited from only after the crash and crisis is over. For instance how many people actually went out and bought property after the real estate crash of 1996-1997? They were available almost 70 per cent cheaper.

 

To benefit from crash, you need to have the knowledge to do so. You need to have tools that will help you analyze financial statements such as balance sheets and P&L. But analyzing financial statements is not enough -- we have seen since decades how easy it is to manipulate numbers. We again saw it in Satyam. While analyzing my personal investments, I always understand the business. I, for instance have been buying so many assets more 400 per cent cheaper than their true value. In a crash so many things are extremely mouth watering and delicious.

 

"Insider" investors, hedge funds and people responsible for the crash wouldn't want others to know these insider secrets, because they want to be able to benefit the most.

 

Sometimes great opportunities come disguised as problems and challenges. Let positive thoughts, words and people surround you. Don't listen to people who are constantly grumbling and cribbing about problems, instead look and learn from people who have gone on to create tremendous wealth. (Read:Are you optimistic and opportunistic?)  

 

Here is what the richest man on the planet had to say about crashes:

 

The stock plunge "doesn't make any difference," says Warren Buffett, one of the richest Happionaires on the planet. "It's happened to me three other times," he says. 
"It happened when it went from 90 to 40 back in 1974, and it happened in 1987. It went down 50 per cent in 1998-to-2000. I mean, I hope I live long enough so it happens a couple more times."

Keep smiling, learning and believing in yourself and you can certainly Cash the Crash!

 

Happy wealth creation!

 

For more Views by Experts click here 

  

Yogesh Chabria is an investor and bestselling author of  Invest The Happionaire™ Way. In his next book Happionaire's Cash The Crash he shares little known secrets on how you can actually make cash out of the crash! You can find out more about him by visiting www.happionaire.com.

 

© Copyright 2008 The Happionaire™ -Yogesh Chabria 
All Rights Reserved 
The Happionaire™ Way/HAPPIONAIRE™ is a trademark owned by Yogesh Chabria