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by Willard Michlin
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The big news on the real estate scene is that the bubble is going to burst. This is not new news, I am one of a few who have been saying it for 3-5 years, and of course history has proven us wrong. I, for one, am willing to admit that I called the top of the market, incorrectly. Does that make me wrong? The truth is it didn’t. It meant only my timing was wrong; history will still prove that the real estate bubble will burst.
All through real estate history, there have been hot markets and dead markets. The hot markets have always taken the market to new highs, and the dead markets-as opposed to calling it a bad market, have usually not gone down to the most prior low. Let me give a real example. In the 1975 Recession I bought a simple 3-bedroom house in Arcadia- a middle class neighborhood, for $19,000 that was worth $32,000 after I fixed it up. At the top of the 1980 boom that house was sold to an investor for $125,000. At the bottom of the 1983 recession that house was worth about $85,000. Again at the top of the 1990 market that house could of sold for $250,000 but wasn’t. . At the bottom of the 1993 crash I sold that house for $207,000. I am guessing that today at the top of this boom this house is worth $400,000 or more.
As you can see, it you bought at the bottom and sold at the top you got very rich. Also true is if you bought at the top and held on until the next top, you still got very rich. Unfortunately those two scenarios are usually not what people do. They over extend themselves and buy, at or near the top, getting adjustable loans with adjustable payments. Dozens of my close friends bought RE in the late 1970’s, late 1980’s, and within the last 3 years. Now, as in the earlier years, they purchased multiple properties by extending themselves on all of their RE (Real Estate), in hopes of bigger and bigger profits. When the market turns, prices always go down and the interest rates go up, causing my friends to have negative cash flows that they may not be able to support. One negative cash flow property you can support, but what about 5 or 10 properties? It becomes an impossible task, forcing investors to sell some or all, of their properties, in the down market, when there are a limited number of buyers, all of whom have many choices on what to buy.
Many of these friends sold at a loss o |
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