Licking Wounds and Learning Lessons

Feb 21, 2008 - 15:00 PM PST

In my real estate adventures I meet a lot of good and intelligent people who have been negatively affected by the downturn of real estate. My intent in this post is to help these people whose self-esteem may be bruised or battered. To help them turn this around and come out of this time in their life a little wiser and more empowered. For as long as we learn our lesson, we will come out stronger, wiser and more financially secure.

Lessons for the Investors

1. Don’t get caught up in the hype. Seeing people you know making $100K in six months for doing nothing but signing a couple of contracts has made it tempting to ignore the downsides of investing. Some real estate gurus have pushed this method of investing hard. In the future, pay attention to the downsides and if you can’t absorb the worst-case scenario, don’t do it.
2. Avoid negative cash flow. A lot of people were investing for the benefits of equity, even if they had to write a check every month to cover the mortgage. The best investments put checks in your mailbox—not the other way around. In the future remember: Cash is king and equity is a bonus.
3. Cut Your Losses. Sometimes the best financial decision you can make is to just lose $5,000 instead of $100,000. I’ve seen people rack up credit cards and drain their savings to feed a bad investment. Don’t do it.
4. Always wear your financial goggles. Look at an investment based on the numbers, not the look. A property that looks beautiful might be financially ugly. A property that’s ugly may turn out to put out, and might actually be more attractive in the morning.
5. Only risk what you can afford to lose. Never put the financial well being of yourself or others at risk. When things don’t go your way it is much easier to make better financial decisions on how to handle the situation when you aren’t in panic mode.

Lessons For The Seller

1. Don’t Be Greedy. I’ve been seeing plenty of sellers kicking themselves for turning down the offer that was 20K less than full price, only to find later that buyers today won’t even pay anything close to that.
2. Pay Attention To The Market. If it’s taking longer for homes to sell in your area don’t try to milk every dime of equity. Price it to move.
3. It’s your job to sell your house too. Not just your realtor’s. If you ignore your realtor’s good advice: Lowering the price, picking up the mess, doing repairs, etc. Don’t blame them if your house doesn’t sell as fast as you would like.

Above all, remember all the greats get mud on their face from time to time, however they get up, dust themselves off, and move on.

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