| |
| |
|
Real Estate Information |
|
|
Greed Can Cost You Your Shirt!
The proper action when things are going well is to pay off debt and consolidate your position. Then you will be financially strong and can go for further expansion without fear of loosing what gains you already have. When you are not deep in debt you do not have to worry about your creditors getting paid. Since the usual history of a business is cyclic (boom and then every 7 years (plus or minus) bust) you can predict when it is time to consolidate. When the prices are "too good to be true, they are." In the two years just before the top of the market is reached, prices are going up at very incredible rate. I have seen real estate go up 25%, per year, right at the top. This is incredible and I guarantee you it cannot sustain itself, at that rate. As hard as it is to give up a profit, it is harder still to sell an investment when it is going straight up. But, understand this is when you need to sell. If that is not what you want to do then you need to go to plan B: pay off your debt and get ready for the market drop. If you are debt free you can survive the drop and then be solvent and financially secure when the recovery comes. I would like to tell you a story of the largest apartment owner in Hollywood. It was 1980 when I met Nick. He owned 11 buildings at that time. He bought the worse buildings in town. These had the best cash flow. He owned mostly brick buildings. This was because they cost less money than stucco and wood buildings. This lower price allowed Nick to generate higher profits. Nick would buy a building. He then did a market study, and figured out what size apartments and what numbers of bedrooms were generating the highest rent, per square foot. Then he remodeled his building to get the highest price per square foot he could. He spent over $100,000 per building to do this. He also had to earthquake proof all of his buildings. One of the reasons that brick buildings sold so cheaply was that they needed to be earthquake reinforced. When Nick finished remodeling a building, it was producing a very nice cash flow. Nick would use that cash flow to buy and remodel the next building. This was very smart thinking. Where did Nick fall off the rails? First he would find a great deal, while he was still in the middle of a remodeling job. He just couldn't pass it by. He borrowed on one of his finished buildings to get the down payment to buy the building. Then he would borrow on a second building to get the money to remodel the new building. Now he was remodeling two buildings at the same time. By borrowing on two of his successful buildings, he now had to pay the loan payments on the two new loans. The rents from the older buildings now went to the lenders instead of to Nick's remodeling project. The new building, just bought, didn't produce enough income to cover the new loan on it because half the building was empty due to the remodeling. Nick now needed to keep borrowing money to fix the buildings and pay the loan payments on the buildings that didn't generate enough income. When a building was completed it then supported itself very nicely. Was Nick happy with that? No, he wanted more and more buildings. If at any time Nick had stopped borrowing to buy new buildings, and just finished all his buildings in remodeling, he would have been able to catch up with himself and started expansion from a new level of security. That was, using the buildings profits after paying all of his loan payments to buy and remodel more buildings. Nick just couldn't wait and consolidate his position. He had every building he owned loaned up to the maximum value that he was able to. The rents were more than enough to cover the payments on each individual building. So what happened? Two things. The first was his greed. We entered the 1991 recession, and the price of buildings went down. The banks were starting to foreclose on buildings and put them back on the market for very cheap prices. Nick just couldn't let a deal pass him by. He bought 3 of them. He borrowed the last dime he could squeeze out of every building he owned to buy these buildings, thinking that he could do no wrong. One bank made him the deal of a century. They wanted a lot of money down but the price "was just too good to be true." Nick was so much in a hurry to get his hands on this great deal he didn't bother to do his normal structural inspections and research. After all, Nick owned 17 buildings in Hollywood by now and knew the market better than anyone else, he thought. He looked at the building and saw it was only 20 years old. The building was empty, which meant it brought in no income. That didn't bother Nick, he would just get it rented quickly and the building would support itself. What Nick hadn't noticed was that the foundation was damaged and a $100,000 repair was needed. This was a repair that Nick couldn't afford. I begged Nick to walk away from this building and let the bank have it back. He refused and squeezed more money out of his collection of buildings. As you can imagine, Nick was loaned to the hilt and had no money set-aside for an emergency. At his peak he owned 17 buildings worth $45,000,000 with him estimating his net worth at $7,500,000. He was definitely worth a lot of money. That was for sure. Before we get jealous of him, lets look at these numbers a different way. If Nick was worth $7,500,000 then his real estate loans had to be the difference. That is $37,500,000. These were sure big numbers. Let's look at these numbers in terms of their percentages. This $37,500,000 was 83.3% of $45,000,000. $45,000,000 had to be the retail value of all these buildings. Nick would not think in terms of selling them. He never sold a building. He only bought, and bought, and bought. What Nick saw was the potential. If property values went up only 10%, Nick's net worth would go up $4.5 M. Property values had gone up over 20% in the 1980's but the recession that had started was of no concern to him. It is clear that he had stretched himself to the limit. The last building the bank sold him put him in trouble. He might have even survived it if he sold one, two or maybe three buildings. No, Nick wouldn't do that. One year later the recession was not over. Unemployment in California went up and up. Businesses were closing, President Reagan was closing down Aerospace, and workman compensation insurance was so high no one could stay in business. Vacancies in apartments were going from 1% to 5% to 10%. Then it happened, we had the LA riots. Hollywood became a ghost town and then it happened again, the earthquake of 1994. Brick buildings fell down on Hollywood Blvd, none of Nick's buildings. People moved away and vacancies rose in Hollywood too as much as 17%. Do I need to tell you what happened to Nick? He lost everything when vacancies went to 5%. He had no reserves or cushion for a margin of error. For 18 years Nick lived like a pauper, in one of his small apartments. He did his own property management for all of his buildings. He drove an old car, worked seven days a week, took no vacations, always had to worry about paying his next loan payment and where to borrow his next dime. His plan was to make $10 Million Dollars and sell everything. What he got was nothing for 18 years of his life. I have no idea where Nick is now. He disappeared off the face of the earth. So, "A BIRD IN THE HAND IS WORTH, A MILLION THAT ARE PROBABLY NOT IN THE BUSH! About The Author Willard Michlin is an Investor, Business Broker, California Real Estate Broker, Accountant, Financial Distress Consultant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at kismetrei@earthlink.net. See other article by Willard at http://www.kismetgroup.com
MORE RESOURCES:
Google News |
|
|
|
RELATED ARTICLES
How to Build a Real Estate Investing Power Team As you continue to read about real estate investing, you will no doubt come across the term 'power team'. What is this 'power team'? A power team is a group of people without whom successful real estate investing becomes very difficult, if not impossible. Purchase Your First Home with Confidence If you are making the transition from renter to homeowner, you're not alone. In 2004, 40 percent of homebuyers were purchasing for the first time, according to "The 2004 National Association of REALTORS Profile of Home Buyers and Sellers. What We Do To Sell Your Property! Once you have contracted us to sell your property we go to work for you to bring you the most money and best price for your property as quickly as possible. Some properties are faster selling than others based on the location, condition, size, price, of course, and type of the property. Join the Bulgarian Property Boom With Confidence An Irish property investor in Sydney, Australia has created an investment kit that provides potential buyers with all of the relevant facts, figures and information to confidently buy Bulgarian property, which grew an average of 30% in 2004. "Bulgarian Property - The Overseas Buyers' Kit" contains a complete guide to the tax and ownership laws, calculators and various information-gathering templates. How to Make Money from the California Real Estate Gold Rush What do the Californians know that we don't?What is so special about California? Why is the average price of a house there five times higher than nationwide? Why on a salary of $100,000 per year, you can hardly afford to rent a decent apartment in the large cities there?It is true, Californians have a nice looking Pacific coastline. They also have a pleasant climate. Real Estate Investing: Infomercial and Mentoring Scams Flipping through late-night infomercials recently, I saw two real estate get-rich quick schemes, and I couldn't help but wonder why people still fall for those old scams? Has anyone really talked a seller out of his home for no money down with owner financing lately?Real estate infomercials do great harm to beginning investors, who waste hundreds of dollars on old information. Worse yet, those beginners soon get discouraged and miss out on the true (and profitable) adventure of real estate investing. Real Estate Investing In Belize Any trip to Belize starts fantasies of owning a beach villa, or a jungle resort. There are a lot of North Americans in this English speaking, former English colony. Home Staging: How to Make Your Tract Home Stand Out in the Crowd Home sellers who wish to market their property in development neighborhoods face tough challenges. All the houses look similar. Atlanta Georgia Real Estate - Marietta - East Cobb, Roswell, and Alpharetta Whether you're a "move up" home buyer, downsizing, or relocating to the metro Atlanta area, you'll find a diverse range of home styles and price ranges just north of downtown in the Marietta - East Cobb, Roswell, Alpharetta corridor. Featuring affordable single family homes, condominiums, townhouses, and luxury real estate, these communities also offer great schools and unbeatable location. Pricing Your Property A house properly priced is half sold. But there are plenty of ways to price it improperly. Why Not To Invest In Bulgarian Property According to research carried out by the Thomson Group, owning a property abroad is now the ambition of over 50% of the British population. Not surprisingly Spain and Cyprus remain the most popular destinations for second home buyers while countries like France, Italy and Portugal continue to grab their fair share of the property investment gold rush!While the usual suspects will always attract the more cautious, risk aversive investor, the most recent generation of property investors can't seem to get enough of what our Eastern European neighbours have to offer. What to Look for in a Real Estate Agent Real Estate Agents play an essential, critical role in the process of buying and selling a home. You just simply cannot afford to work with an agent that does not exhibit top-scale professional values. Theres More To Making Money Than A Tertiary Education An education of some sort is a prerequisite these days if you want to start a secure career in whatever field you choose. However, have you thought about where this will get you exactly? Will it help you achieve all your dreams in life, both financial, physical, emotional etc?This article is focusing on the financial and lifestyle dreams that you may have. Things To Consider Before Buying a Condo Hotel or Resort Residence Resort home ownership, such as condo hotels and fractional shares is different from typical home ownership. So it is important to ask certain questions before signing the purchase agreement on a resort property. Property in Northern Spain If you're looking for the 'real' Spain where the culture, customs and the traditional Spanish lifestyle have been preserved - a Spain long ago lost and forgotten along the Costa del Sol - consider Northern Spain.Northern Spain has always been a popular holiday destination for southern Spanish tourists, but until relatively recently it was largely unexplored and undiscovered by foreign tourists and those expatriates seeking a new home overseas. The Ultimate Short Sale Secret Buying foreclosures can be extremely profitable for real estate investors. However, most of these homeowners are mortgaged to the hilt. Maltas Market Battle With new destinations such as Bulgaria, Slovenia and Croatia offering two and three bedroom apartments for sale for 50,000, there was concern last year among some Malta estate agents that 2005 could see a drop in the number of UK and Irish buyers choosing to buy a holiday home on the island.With good all year round temperatures enticing many buyers for the winter months as well as the summer, driving on the left and a warm welcome from the local population who nearly all speak English, Malta has been popular for some years among overseas property buyers. Landlords Dance The FICO Fandango Fair Isaac Corporation is the creator of the FICOcredit score that is used today by most lenders toevaluate consumer credit risk. FICO scores rangefrom a poor credit low of 500 to a best credit ratingof 850. What are the Top 11.5 Criteria for Selecting an Orlando Investment Property 1. Make sure units are larger than 1800 square feet. Getting Raw Land, Not a Raw Deal! There is more to buying raw land than meets the eye and more than a few individuals have wished they'd had a second chance upon finding themselves duped, conned, misled, ill-advised, uninformed, oversold, undereducated and often unprepared. They realize, often too late, that a raw land purchase should be properly investigated, evaluated and negotiated using a logical and rational plan.
|
| home | site map |
| © 2006 TIGER MEDIA |
