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Hope Springs Eternal!

July 15, 2009 – 11:47 am

When the stock market took it’s precipitous drop in value in the second half of 2008, it took all sorts of investors with it.  The steep slide seemed to catch every type of investor by surprise.  Sure there are tales of the odd investor who says he converted to cash in 2005 and felt vindicated, but by and large both novice and so called expert investors went down with the ship.

Typically it is the small investor that goes merrily investing long after the astute investor has dumped all his shares for the novice to gobble up at unprecedented prices.  The same scenario can also be applied to real estate.  This time around big and small investor went off the precipice thinking they were real estate’s answer to Einstein.

So there they are, big and small, bloodied and dazed and hoping that the free fall is over.  After all, here we are in the summer of 2009 and there are just the barest signs of life starting to show in the economy.  A proverbial blade of green grass pushing up through the dry and partched earth giving hope that better days are ahead.

Here is where seperation once again begins between astute and non astute investors.  In real estate we find a whole lot of people once again trying to show their investing prowess by buying up small homes to rent and then to sell.  In some cases these homes are REOs, sometimes they are short sales and sometimes they are just regular sales from somewhat motivated sellers.

With tens of billions of dollars worth of residential foreclosures still on the horizon I have to question this investment philosophy.  How can one buy if the prognosis is for prices to be pushed downwards? How can one expect to cover their costs by renting if there are so many single home investors competing for the same renters?  Thats not to mention all of the existing apartment stock on the market that is also competing in the same marketplace.

Moreover, there seems to bidding wars going on for many homes as multiple buyers clamor to get in on the party.  Doesn’t this just bid prices up and defeat the entire purpose of buying cheap to begin with?  Doesn’t this just gladden the hearts of bankers everywhere with large stocks of REO homes in their portfolio?

Time will tell of course but right now it doesn’t seem to bode well for those joining the crowds.  Of course it may make sense for a buyer who just wants a home for their family and will be staying in it for the next 5 to 10 years.  That involves a different decision than the investor who has solely a profit motive in mind.

Personally I think there might be something to that tortoise and hare race.  It may just make sense to sit back and enjoy the tumolt for awhile before joining in.



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