Not the right period for risks. Invest only if you secure one of these 2 conditions
The Eurozone still trembles and many people already doubt that last night’s measures will solve the problem. An important part of Romanian banks suffer from a serious cash shortage, this is why they approve very few loans and they try to be as careful as possible. The Romanian economy looks under control though. This stability inspires several investors to look for deals in all segments of Romanian economy. But the international environment worsens every single week. “So what do we do?”
No time for risks
During this turbulent period, there is no reason for someone to assume risks. Whether he is a fund manager, a development director or a single investor, this is the time for careful moves and extended analysis of all scenarios. One might say: “But this way, you might lose an opportunity”. Correct, but you might also lose your money, if the opportunity is an “opportunity” and not a real one.
2 important conditions to secure before proceeding
During this crisis, serious investors proceed only if they secure a comfortable position for them. A position / situation that makes them feel that they minimize the risks and they will be able to handle any unexpected problem that the following period might bring.
This situation / position is secured if one of the following 2 conditions is in favor of the investor:
1. “The right property / company / project”
The market is full of offers nowadays, but there are very few of them that really make sense for an investor to consider them as a serious investment option.
· Do you want to buy a property? You see 100 but the good ones are less than 10.
· Do you want to invest in Green Energy? There are tens of projects out there, but not even one quarter of them combine professional owners and feasibility.
· There are many business projects for sale (from chains of shops, to factories or service companies) but very few of them have the potential to become a successful “turn-around story”.
So, a good reason for someone to proceed nowadays in an investment is to secure a very good property or project. This added value (of the right project) will be an important asset during the crisis.
Still this deal should be fairly priced. Expensive deals during this kind of crisis simply remain at the stage of “discussion”.
2. An attractive (distressed?) price
Usually the best motivation for an investor is an attractive price. If it’s a distressed one, this is even better. During this period, this is even more important than it used to be. Why? Because like this the investor:
· Starts with a direct advantage and earns from the beginning.
· Obtains a price which allows him to cover any possible further decline.
· Reserves some money, which he might invest in the property / project, in order to bring it to the right status / condition.
All the above are valid only for properties with a real value. Just buying cheap is not a safe investment strategy.
For example: A land out of Bucharest once had the price of 100 Euro / sq.m. If you buy it today with 20 Euro / sq.m. but it’s extravilan and the utilities are at 5 – 6 km distance, the deal is clearly not in your favor. And you risk getting stuck for many years and seeing the price further depreciating.
No clear advantage = no deal
The ideal would be for an investor to secure both conditions before proceeding. But at least one of them is vital. Without any of these 2, he does not obtain a clear advantage and this means that there is no reason for him to proceed in the deal.
This is why when you read in the media stories about “potential deals that are about to be sealed”, don’t be so sure that they will be really signed, unless one or both of these conditions are met.
Do you disagree?