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Corporate Finance - Assignment Example

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There are three keys to selling short. The first key is to buy in while values are low. Secondly, the key is to amass as much property as possible while the values are still low. Thirdly, the final key to selling short is selling off the properties, when the market value rises, for a profit.
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Corporate Finance Assignment
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Corporate Finance There are three keys to selling short. The first key is to buy in while values are low. Secondly, the key is to amass as much property as possible while the values are still low. Thirdly, the final key to selling short is selling off the properties, when the market value rises, for a profit.
The key to selling short in any way, shape, or form is to know when to buy into the market. In order to design and implement a strategy starting on May 1, 2007, what will have to be taken into account is perhaps making a chart of what the market will look like in the future year.
Imagining we were able to tell the future, we could plot out when would be the best time to buy property based on the fact if the market was running high or low. If the market was running especially low, it would probably be a good time to buy in.
One wants to buy in for a period of 18 months where it is mostly going to be seen as being low. This increases the chances that we, as the investor, would most likely be able to pick up a lot of properties using the $10,000,000-dollar cushion.
It's very possible that one will buy in at the right moment. After all, in this case the right moment has already practically been delineated for us.
So, let us say that perhaps one buys in at the right moment. The next step is to amass as much property as possible while the values are still low.
The same principle which holds true for selling stock on the stock market also holds true for real estate. Buy low, sell high.
Now, the reason that companies not doing so well is good for other types of businesses is simple. When stock values are low, it is a good time to buy into those stocks because when stock prices rise, they will be worth more in value.
Similarly, if one buys a lot of properties, but perhaps let us say that they are not particularly worth much at the time they are bought-it is untowardly possible, albeit untowardly, that the properties bought may escalate in value. When and if that happens, the investor seeks to make a profit.
While values are low in stocks and in real estate, this is the investor's dream. While he can buy stocks and real estate relatively cheaply, since many people are in a bad state of affairs financially, he will later reap the financial rewards of having taken advantage of the low prices. Investors will short stocks when [prices decline]."1
This investor can then turn his finds into profit. This is what will happen when he sells the shares or property (in this case, real estate) at a higher price.
This is called selling short. To sell short, one must sell the properties at a higher value than what they were originally worth when he bought them.
The investor may do numerous things in order to increase a property's worth. He may gut and rehab the entire property, also known as "flipping" a property.
There is a lot of money to be made in "flipping." People who flip houses basically come in, renovate, and then resell properties at a profit.
The basic idea is the same as short selling, which is, you can get more for what you put into the project than you put into it yourself. This is the basic premise of selling short.
Obviously, for this particular project, we would want to buy the property when the most dramatic drop in prices was. We would want to keep buying property at which time the value would be the lowest. That is how one benefits from selling short.
REFERENCES
Short selling stocks. http://www.money-zine.com/Investing/Stocks/Short-Selling-
Stocks/. Retrieved 15 April 2010. Read More
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