Monday, March 17, 2008
History Repeats
A famous saying, no doubt. Does anyone remember the Japanese meltdown of the early 90's? Their refusal to write down the bad paper resulted in a lost financial decade ! Hang on to your hat - Bear Stearns is the first of many, can the government bail them all out?
Sunday, March 09, 2008
Capitulation?
Some observations from the trenches for the first quarter of '08 - so far.
Capitulation. We have all heard the term capitulation. It means to give up, to admit defeat, to walk away. As investors, we are all holding our breath for the day the lenders/banks capitulate. Though there are many signs this time is near - most of us believe it is not quite "soup" - yet.
However, I will say with certainty that homeowner capitulation is here. Not just for those whom are upside down, owe more than their property is worth, the financially bankrupt. But also for those with legitimate equity - sometimes a lot of equity.
There is suffocating pressure to meet financial obligations. The desperation of these seemingly solid financial homeowners is shocking. There are forces much greater than real estate at work here - it's definitely not just housing.
The hard truth is that many of these seemingly solid borrowers will not make it. They do not recognize the dire situation they are in - a downward spiral to financial ruin. And yet still, they pull from their shrinking pile of cash and give it to the creditor with the most convincing argument. The one who drumbeats loudest the importance of the "credit rating". As a result, these folks are also destined for bankruptcy.
So - coming full circle - what does this mean for the investor? In my opinion, it means be very careful with your puchases. Prices will certainly continue to drop. When lenders finally give in and start slashing prices, all bets are off and the games will truly begin. Today, a million dollar home for 50 cents on the dollar seems like a no brainer. But is it? Maybe if you can get it for Zero or incidental cash down and it has a fantastic loan on it. But remember next summer it may lose another 100k in value. Is it still such a good deal? Prudent investors will know and act accordingly. Others will get burned.
As an investor you need a "bullet proof" exit strategy. Whether is is assignment of contract, buy and flip, buy and hold, or lease option - remember to have your plan in place and stick to your guns. Just like Las Vegas, only bet what you can afford to lose.
One final word about credit and FICO's. We all want a good credit rating. More importantly, most of us recognize that if someone loaned us money for a house or a credit card or a car, we want to pay it back. We feel morally obligated to do so. But there comes a time when you must take stock and watch out for #1. For many, this is war and cash is king. Hang on to it and make them pry it from your cold, dead fingers!
Richard Worcester has been an Investor for 25 years. He has 3 wonderful children and 6 grandchildren - though he looks 10 years too young to have grandkids. He is the Founder of the North San Diego Real Estate Group, and President of The Hilltop Group of Companies. If you would like one-on-one mentoring, please email Richard at : Rich@78Homes.com
Capitulation. We have all heard the term capitulation. It means to give up, to admit defeat, to walk away. As investors, we are all holding our breath for the day the lenders/banks capitulate. Though there are many signs this time is near - most of us believe it is not quite "soup" - yet.
However, I will say with certainty that homeowner capitulation is here. Not just for those whom are upside down, owe more than their property is worth, the financially bankrupt. But also for those with legitimate equity - sometimes a lot of equity.
There is suffocating pressure to meet financial obligations. The desperation of these seemingly solid financial homeowners is shocking. There are forces much greater than real estate at work here - it's definitely not just housing.
The hard truth is that many of these seemingly solid borrowers will not make it. They do not recognize the dire situation they are in - a downward spiral to financial ruin. And yet still, they pull from their shrinking pile of cash and give it to the creditor with the most convincing argument. The one who drumbeats loudest the importance of the "credit rating". As a result, these folks are also destined for bankruptcy.
So - coming full circle - what does this mean for the investor? In my opinion, it means be very careful with your puchases. Prices will certainly continue to drop. When lenders finally give in and start slashing prices, all bets are off and the games will truly begin. Today, a million dollar home for 50 cents on the dollar seems like a no brainer. But is it? Maybe if you can get it for Zero or incidental cash down and it has a fantastic loan on it. But remember next summer it may lose another 100k in value. Is it still such a good deal? Prudent investors will know and act accordingly. Others will get burned.
As an investor you need a "bullet proof" exit strategy. Whether is is assignment of contract, buy and flip, buy and hold, or lease option - remember to have your plan in place and stick to your guns. Just like Las Vegas, only bet what you can afford to lose.
One final word about credit and FICO's. We all want a good credit rating. More importantly, most of us recognize that if someone loaned us money for a house or a credit card or a car, we want to pay it back. We feel morally obligated to do so. But there comes a time when you must take stock and watch out for #1. For many, this is war and cash is king. Hang on to it and make them pry it from your cold, dead fingers!
Richard Worcester has been an Investor for 25 years. He has 3 wonderful children and 6 grandchildren - though he looks 10 years too young to have grandkids. He is the Founder of the North San Diego Real Estate Group, and President of The Hilltop Group of Companies. If you would like one-on-one mentoring, please email Richard at : Rich@78Homes.com
Monday, March 03, 2008
Private Money Lending Seminar
Join us Thursday, April 3rd for lunch and a Presentation on Private Money Lending in Southern California Real Estate
RSVP to 760.809.4666 or RSVP@TheHilltopGroup.com
RSVP to 760.809.4666 or RSVP@TheHilltopGroup.com
Subscribe to:
Posts (Atom)