However, for most of us ordinary investors, greed is not so good, especially in recessionary times.  I am specifically speaking about real estate investing although I believe that my thoughts may also be applied to the stock market.

Greed tends to make us think that we ought to be jumping into the fray and picking up investment property on the cheap.  That is not a bad idea but the implementation of it can have drastic results if not thought out very well.  Most smaller investors are not that tuned in to the real estate market, just as they are not tuned into the stock market.

This issue came to light when I read a promotion for people to take equity out of their homes in California by refinancing, and buying small properties such as 2 to 4 units apartments in other states.  This concept is not new and can be very dangerous to the average investor.  Of course this all presupposes that someone in California still has equity in their home.

The core problem is that the average small investor typically relates the market in most other states to that of Orange County.  We happen to live in one of the wealthiest counties with one of the best economies in the United States. At least it’s that way in normal time.  We tend to go into recessions last and come out first because we are such a desirable place to live and invest.

Most other states do not have the diverse population  or economy that we have and do not have the population density we have.  They often rely on one or 2 major industries and if those industries have problems everyone in the area suffers.  Just look at Detroit.  In fact many of these states do not rebound for years after a recession has ended.  The population density can easily shift and apartments may have vacancies for years.

Moreover, the investor becomes dependent upon a local broker who is very motivated to make a sale.  They may be sincere but they cannot relate to an Orange County economy or weather and what they consider normal may be far from we out here call normal.  In fact properties need to be built to withstand very severe weather conditions, something we know nothing about in Orange County. They also must be maintained constantly to withstand the various weather conditions.

When problems occur with a property out of state the investor will suddenly find out that the property manager for a small building can only be of limited help without lots more money to be sent to them. If the investor owned a property locally they would drive over to it and see what the problem is, make an informed decision and tell the manager how they would like the problem handled. When they need to catch an airplane and kill at lease one day going back and forth, they have a problem. An owner’s decison may not be the same as the property manger’s  but when you are a long distance away one has no way of knowing. The investor may have no idea if the property is being properly managed at all.

One also realizes the problems with out of state investing when vacancies arise.  The local property manger or broker will typically put out a sign and hope for the best. In Orange County that may be all that is needed. But in another state with a poor economy one may need to do a whole host of marketing techniques in order to get a property rented.  The out of area owner can only sit and mange their anxiety while the world seems to spin out of control and their cash flow dwindles to nothing.

I won’t even mention the problems with selling a property for an out of state owner.  That is for another session.  Suffice it to say that one must harness their desires to be the next great bottom fisher that we will all read about in future sucesss magazines.  So keep that greed in check and always always keep the basic investment criteria in mind.  Not the least of which is that in real estate, you need to be relatively close to your property unless you are doing very large deals or are a pro.

Unfortunately it is not the productivity that we especially wanted to see.  The net effects are a financial market in turmoil, banks who won’t even loan to one another, dramatic drops in the stock market and an investment community that is shell shocked.

The question now is what do we do when the smoke finally clears?  When I say we I am really talking about real estate invesments.  No one really knows where we are headed not to mention what we do on the way to getting there.

It seems safe to say that the financial mess and the general economic doldrums that the United States is in will not correct itself in the very near future.  Some say things will get better in a year and others feel that we still have 3 years to go.

In my opinion we  do have at least a year to wait and probably 2 or 3 years of a challenging economy.  Most markets take 3 to 5 years to fully develop and turn around and we are in this one approximately 2 years.  What to do in the meantime?

Owners of properties have an interesting decision to make.  In general, rents, while soft, are not collapsing in Orange County.  Office rents are being aggressively negotiated by landlords and are definitely lower than a year ago.  However, retail space is holding much firmer and industrial is somewhere in the middle.

If an owner thinks that they would like to sell in the next couple of years it seems apparent that they should be marketing their property now.  Things are not going to get any better for the foreseeable future and they could get a lot worse.  Hesitating can cost real money.

It’s a good time to get very aggressive with office vacancies and do what’s necessary to fill them. Who knows how many people will even be looking for offices in the future.  This is a tenant’s market and there is no use pretending otherwise.  Owners big and small are coming to that same conclusion.

Buyers are in the beginning of a great market.  This is the start of a time when significant profits can be taken. For those who have staying power, deals can be cut that are huge discounts from 2 or 3 years ago on office properties.  Deals are not as plentiful in retail or aparments but those days are most likely coming, especially in retail where rents got extremely high.  Riduculous offers from just a few months ago may well be welcomed in the next few months.

As always there will be winners and losers in this market and as always we may be plenty surprised at just who they are.  Hang around, things are just starting to get interesting.

This lesson has once again been vividly spot lighted since the last half of 2007 and so far in August 2008. When this slow down portion of the cycle will start to turn towards the upward swing is still not very clear.

Mortgage brokers and agents are dropping out of the field like flies.  Companies are closing up right and left leaving vast empty office suites in their wake.  Some entire buildings in Orange County have become see through buildings just like we used to have in the 1970s and in portions of the 1980s.  Cars, steaks, trips and cash are being offered as inducements to lease an office space. 

One would think that Orange County commercial real estate is dead, dead, dead.  Interestingly enough, it isn’t.  Just try really low-balling a price on some investment property and you will be shocked to find that the seller may not even take the time to respond to you.

Sure prices have come down from those 12 or 18 months ago.  However, they haven’t plunged and the properties have not wound up in banks REO inventory.  Sellers are hanging tough, at least so far.  They aren’t panicing and they aren’t selling or leasing at just any price.

One could say that commercial real estate in Orange County is selling like hot cakes.  Sure, maybe like hot cakes at a Weight Watcher convention, but still selling.  Sellers will cut a deal that gives the buyer a small cash flow but that is really all that has happened.  Owners are convinced that Orange County real estate has tremendous intrinsic value and they aren’t giving it away.  After almost a year of soft sales and tough financing issues, prices are still hanging in there.  At this point I don’t think things are going to change very much in the future either.

I haven’t seen any indications that sizzling deals are soon to follow.  Commercial properties have been sold with fairly large down-payments in order to get the property financed, unlike single family homes.  This gives owners a solid cushion of safety before their properties start running negative.  Right now it looks like it is more likely that the properties will become hot again rather than the deals will become sizzling.

The question to ask oneself is where else other than real estate would you rather invest your money for the long run?  Where else would you rather have your money invested if inflation really kicks up again?  From the looks of the commercial marketplace in Orange County, the answer is clearly real estate.

The stock market dropped then has regained slightly but is still significantly down. GM announced a $39 billion loss for last year, Fed Chairman Bernanke has said that he is prepared to keep reducing the bank lending rate to keep the economy moving and the President and Congress are trying to decide how big a stimulus program to institute.

Things sure seem bad. Strangely enough though, the commercial real estate market is still chugging along like the little engine that could. True things are not like the recent past but they aren’t like the dark ages of the early and mid 1990s either.

Rents are still going up, occupancy levels have decreased in office properties due to the mortgage companies that have bailed but retail and industrial occupancies are still hanging in there. Apartments are still doing well in general. However, that market is skewed with all of the high end units that have come on stream in the past couple of years together with the condos that couldn’t be sold being converted to apartments.

Right now it seems like the Orange County commercial real estate market is going to squeak through the current economic mess in fairly decent shape. There are no mass foreclosures going on, in fact there are almost no foreclosures of any kind going on in the Orange County commercial real estate market. You can prove the point by calling any major bank and asking for a list of their commercial foreclosures. There aren’t any.

So if you are an investor in real estate, don’t get depressed. Maybe you shouldn’t read the newspapers either.