An Indian Civilizational Perspective

Real Estate Slump and the Real Estate Teachers

Saw this article on yahoo “How to Profit From a Cooling Real Estate Market“. What intrigues me is this same guy (Robert Kiyosaki) and his team who is talking about the follies of the amateurs hold seminars to teach people to GO amateurs!! And what they teach in those courses is the same thing.. flipping!!

I have attended one such seminar by Robert Allen.. and its the same drill every where.

Now, when the market gets cool.. these same guys go back and chide the very folks who paid money to come in!!

This is what he says:

Flippers are toast — many will end up dumping homes they can’t afford to carry. But for property investors who are real pros, good times are ahead.

He cites the glut around in the market in US – specially the overheated ones – where the oversupply will lead to further slowing down. Like this scenario in San Diego (a city I went to last week and did think it was a good place to live!)

Also, a glut of new property supply, especially condominiums, is coming on line. A friend of mine, a very seasoned real estate investor, says in San Diego County, once one of the hottest real estate markets in the country, thousands of new condominiums are getting ready to come to market — just as the market softens. He estimates that over 12,000 new units are coming on line, and the market, at the best of times, can only absorb about 1,000 condominiums a year. If he’s correct, that means 12 years of supply will be ready for market in the next year.

In this mad crazy real estate market everyone went about buying the real estate for flipping, selling, renting etc.. in a hope to make money.. and what did they end up with at this moment? Lots of payments and no sale! Here is one real scary scenario that he narrates:

In the coming months, I predict we’ll see an increase in people dumping real estate they can’t afford. They’ll be forced to sell because they’ll be eaten alive by a phenomenon known as negative cash flow. Investment properties that you have to feed money to every month are fondly known as alligators — if you can’t afford to feed the property every month, it eats you.

I know of one so-called real estate investor (and I prefer to call people like him speculators rather than investors) who has three homes he thought he could flip for a profit — but he priced them too high. Now, $7,500 comes out of his pocket every month to feed the negative-cash-flow alligators. The problem is, he and his wife don’t earn that much a month. Their three alligators are literally eating them out of house and home, consuming the profits they made from other flips — and their savings.

So, how bad will it be before the “Pros” would like to jump.. and what are the triggers? Here is his take on this:

I suspect that many of our foreign investors who have been buying our debt may be becoming more cautious about investing in American assets, especially U.S. bonds. Many foreign bankers may be having doubts about the U.S. government paying the interest on our debt. In other words, many investors will be moving increasingly out of their cash into tangible assets such as gold, silver, and other metals. Again, this is only a suspicion. We should know more by September of this year.

If investors stop buying U.S. government debt, who knows what might happen? The U.S. may need to raise interest rates even higher, which will drive home values down even further. So be patient, keep looking at real estate, but keep your hand on your wallet (unless of course you find a seller with a really mean alligator eating him alive).

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