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Real Estate Pigs Getting Slaughtered
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It’s always exciting whenever you hear stories of how much Joe Schmoe made a bundle as a bubble expanded, but it’s always downright awful whenever you’re hearing stories on the backside of that same mountain. Think what you want about Kiyosaki (Rich Dad Poor Dad) and the ideas he’s espoused, but what he does have is experience with real estate and in troubling times it’s that experience that will carry you through the day. Kiyosaki is also the first to discuss how real estate speculators are getting slaughtered by their alligators. An alligator is what he, and I assume real estate investors since he uses “we,” calls those negative cash flow real estate properties many speculators are holding onto in this softening market.
One quote is especially poignant: “Yet it’s the amateurs who come late to the party — and who eventually donate their money back to the professionals.” This applies as much in real estate as it does in the stock market and even in poker. Something gets popular, suckers come in, and the suckers get cleaned out. The article is a quick read and sends across some good points (perhaps borderline obvious, but good nonetheless) if you have a free moment.
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Hindsight is 20/20 and is Robert’s strongest talent…
In the stock market, there’s an old saying – the bulls make money, the bears make money, the pigs go broke.
In real estate, especially as investment – don’t bite off more than you can chew. And if you chews (pun intended) an alligator knowing that it has negative cash flow, don’t expect sympathy when it bites you instead!
I’ve been a critic of Kiyosaki, but he did write an article a year ago proclaiming a housing bubble. It may have been obvious to many, but many in the financial and RE community did not agree. Prices were still showing quite a bit of strength.
I am definitely seeing this in Baltimore City. There are hundreds of units just waiting to get in on the market… right after it cooled off. There are some great new townhomes in an area called Locust Point that people bought for 615k a year ago. Those same units (unlived in) are going for 490k on Craigs list. Rental prices for those places range from 3k a month to 2k a month (I would assume because the buying prices have varied so much). What happens when the 3k a month place doesn’t rent out for months because renters can get the same place for 2k?? Well, the aligators get their meat. =)
But in the end I agree with the previous comment: hindsight is 20/20…
I walked around the construction area in Locust Point up near the bridge, they’re nice places but they’re not particular big and they stare right at that traincar depot. I never can understand the love of living in the city, especially a non-exceptional city like Baltimore, that would lead someone to buy a $615k townhome with a gorgeous view of traincars with hazardous writte on the side.
Extremely well said, Brian. Can’t agree with you more. It’s so easy to say something that is seemingly correct. If the timing is off, then you’re wrong, period.
If an investment is cash-flow-negative, it’s not a question of “timing”, though.
At least with stocks, the worst thing that can happen is that you lose 100% of the money you invest in a stock, but no more. With real estate, it can keep chomping away at your net worth until you’re bankrupt. Taking care to pick only RE investments you can handle isn’t a matter or timing.