Tuesday, December 6, 2011

So you think you know it all?

I have long been a student of many different things. The good aspect of this is that I know a lot of stuff about a broad range of subjects. One mantra that I do believe firmly is that all education can be beneficial and that if you apply it that it can help you become a success. Now for reasons that even I don't fully understand, I have decided to work in Real Estate for the most part. This inevitably leads to one major question from most people, "Isn't Real Estate doing terribly right now?"

I have an immediate gag-reflex reaction where I want to describe to people that real estate isn't as bad as you've heard and that you are much better off investing in real estate than in any other investment right now. While I could go off on that for a while (and I may a little later in this very blog), that is not usually the first response I give to people. The first response I normally have to that question is that even if we were in a gloom and doom real estate economy, being a real estate professional is about knowing the proper decisions to make, so that a novice investor is able to make a smart, educated decision. I guess even though stocks have really dropped precipitously as a whole recently, the average person does not feel as if the situation warrants every stock broker to retire and give up his craft. Why do they expect that of real estate?

I guess I am somewhat irritated by the fact that because it is something that the average person doesn't understand that we should just give up the profession altogether. The reality is that nothing is further from the truth. The less you know about a medical condition, the more likely you are to see a doctor. The scarier the legal notice that someone receives in the mail, the more likely they are to call an attorney. The more money you place with your bookie, the more likely you are to seek help (OK, the kind of help you should seek is probably not anyone HELPING you with bets, but...). The more dire your marriage, the more you need counseling. We see it in so many areas that the statement is self evident. The less you understand about real estate, the more you should consult with a professional about what decisions you should make.

The problem is that people don't. They allow fear-mongering to rule their lives. They rent, when they could buy. They refuse to invest in real estate for fear that values may go down. The reality is that now is a historically great time to buy real estate. Now that doesn't mean that you should put a 2005 mentality on and leverage yourself to the max and just hope it all pans out. That was a bad decision then (as many people are finding out) and it's a bad decision now. The difference is that if you sunk all your money (or hoped-for money through a loan) in something other than real estate, you probably lost it all there too. And yet, you do not have the government offering forgiveness for shortfalls there, while people selling their houses that were over-leveraged are being forgiven debts all over the place. Many clients consider it a failure if they cannot get more than 50% of their debt forgiven. Imagine that. Name one other investment where more than half of your debt can be forgiven. Just try.

Now, let's talk about the fact that it is no longer 2005. Banks, in general, are not giving out over-zealous money anymore. Further, the government is not encouraging them to do so. They are once again protecting us from ourselves. Further, it has never been a better time to buy, rather than rent. Right now, on average for my county, for every $100 of rental value, the same house can be purchased for about $53. Consider that you could get a house almost twice is big as the one you are renting for the same payment, if you bought. Or rather, consider that for just over half of what you are paying to rent, you could own the same house.

And none of this considers the fact that you get value out of the use of your investment, even if the "value" of the investment goes down. If your stock goes down, you lose money without exception. If a home value goes down, you can still recoup the money. If it's your home, unless you were going to be homeless, you are just paying what you would otherwise pay. If it is an investment, you can collect rent each month. Both of these are actual value added to the investment.

But the truth is that none of this probably matters. If you've read this far and you disagree with me, you are probably just looking for evidence to rebut what I say, and honestly, this advice is so generic it doesn't evaluate every contingency. You could probably come up with a precisely defined set of criteria that make you a poor buyer. But those of us who do it for a living are seeing people make 20% on their money in 3-4 months, which is easily over 50% annualized. And those that are holding on to properties to live in are getting way more than they would in a rental situation. Those who are holding on to investments are making more than in almost any other investment these days. Sure there is a risk. If there weren't, there wouldn't be opportunity. But, that risk is seeing larger rewards than at just about any time since the Great Depression.

Remember that it is those who are out in front of the curve who have the most success. Some will reject my educated point of view, because they think they know more about it. That is the biggest problem with it all. The perception of those who don't live and die by the industry thinking they know it all is the same kind of ignorance I display when I ignore my doctor's advice. It is the same logic that will keep many potential investors from capitalizing on this "Garage Sale for the Rich" that is going on with Real Estate right now. And that is the worst kind of obtuse to be!

1 comment:

  1. 1) I am going to start using that phrase: "the worst obtuse to be."
    2) I agree with you about real estate. So Jay and I bought a house. We got a really good deal on it, too. And we really think that the next time you feel grumpy about people not trusting your eloquently expressed perspective here, you should come see our house to be reminded that everyone is not operating in the worst obtuse state. :-)