Whose fault is it, anyway?
Not much into economics and politics, but I did read a recent report about Alan Greenspan, the former Chairman of Federal Reserve who single-handedly steered US economy for nearly two decades, being questioned by a Congressional committee on the current economic crisis.
I was somewhat entertained by Mr. Greenspan’s statements. For instance, he called this mess a “once-in-a-century credit tsunami” and admitted that he “still did not fully understand why it happened.” I am not sure why it is so difficult to understand for Mr. Economic Guru. Apparently, every real estate investor in Houston knows exactly why we are in this mess – as evidenced by lively discussions in online real estate forums.
Here are some explanations that I read recently (feel free to fill the blanks):
- This is all fault of big greedy banks that did not…
- This is all fault of greedy mortgage brokers who did not…
- This is all fault of careless consumers who did not…
- This is all fault of our government that did not…
and on and on and on…
If we add together all these culprits, we will have most of the American population to blame. Except for Alan Greenspan who specifically pointed out to Congressmen that this crisis was not HIS fault. Well, I would like to officially put it on the record that it is not MINE, either. I’d rather be classified as a victim of this “credit tsunami.”
Speaking of victims…
Whoever’s fault this mess is, we all mostly agree that the near future is bleak. We expect that people will lose jobs, houses, families, and sanity. The trick is to survive. Naturally, we’re trying to be prepared. We’re making changes.
As everything seems to crumble around us, isn’t it tempting to radically change directions and finally jump head-first into something different?
Maybe. However, before you take the plunge, I suggest you ask yourself these questions:
- Was this route available before?
- If yes, why didn’t I take it earlier, when economy was better?
- If I was not sure that it’s a safe/affordable/wise decision back then, why is it suddenly safe/affordable/wise today?
The rise of the golden opportunity.
Let’s now talk specifically about our favorite business: real estate investing. As you probably noticed, all real estate gurus became very excited and proclaimed that this new market is a tremendous opportunity to become rich. I am all for it (becoming rich, that is), except that I am left-brained, and I like to analyze things before jumping in.
Last time I checked, real estate investing involved 4 steps:
- buying
- fixing
- holding
- selling
The middle two steps are optional of course, but buying and selling are unavoidable. When we talk about opportunity, I assume we’re talking about making money. During which steps do we make money, as investors? While it’s certainly possible to make money during acquisition, it is not that common. I have not seen anybody making money during rehab, except contractors and hard money lenders. Then, we must make money from holding (as in renting or owner-financing) or from selling. Makes sense?
So, where is that golden opportunity they are screaming about? Apparently, in buying cheap! Fine, I totally agree that bad economy will result in incredible bargains available for purchase. However, as we just concluded, investors make money during holding and selling – NOT during buying! Now, ask yourself: what happens to your ability to make money by holding and selling in BAD economy? Are you more likely or less likely to find buyers? Are you more likely or less likely to collect rents and installment payments? How are you going to pay mortgages and taxes when you have vacant unsold properties on your laps – even though you purchased them dirt cheap?
Out of all recent promotions, my favorite one is this: “This is a great opportunity, especially if you have a lot of cash.” Hey, buddy – if I have a lot of cash, there are always opportunities. People who are searching for opportunities do not have cash – this is exactly why they are looking!
Do not misunderstand me: I am not suggesting to run away from real estate. I am suggesting that you have a complete plan when you get into it. Not just the first part, how to get “in.” Getting “in” is going to be easier these days. Getting “out” is going to be tougher. Make sure you are armed with a Plan B, Plan C, and Plan D. Otherwise, instead of grabbing an opportunity, you will BECOME an opportunity for someone else to make money from YOUR mistakes. Do not turn into a “motivated seller” yourself!
Time-tested and guaranteed to work!
Finally, there is another kind of opportunity I’d like to comment on. It is an “opportunity” to sign up for an expensive training program. Have you noticed how these training programs mushroomed from seemingly nowhere? The moment the crisis struck, every wizard of real estate was instantly ready with a “custom” program “specifically tailored” to the new market conditions.
Wow, I am impressed. These are not just your generic get-rich-in-real-estate courses, oh no! These are the exact kind of secrets that work in times of economic turmoil, and they are GUARANTEED to work! I am sure that these claims are based on priceless experience, because their authors themselves surely have lived and prospered thru MULTIPLE prior financial disasters, right? How else would they know with such clarity and conviction what works and what does not in the times ahead? It’s only under-educated people like Alan Greenspan who “do not fully understand.” Maybe, Mr. Greenspan needs to sign up for these boot camps. And he better hurry! As always, “less than 17 spots left, and they are going fast!”
Sarcasm aside, I am sure that there are legitimate and helpful training programs, there are experienced and ethical investors to learn from, and there is a lot of true opportunities to make money and have fun – despite the trying times. I wish every one of you the very best, and I hope to hear your success stories.
PS. Meanwhile, please remember my 3 questions above.