Monday, December 05, 2005

A bit of catching up

Well, let's see what's accumulated in the sack...

I keep getting questions about investing in real estate. My first thought is usually, "You're a bit late, mate. The big run-up has already happened, and cheap financing is going bye-bye." I try to avoid being this glib, though, on the outside chance that the questioner has done some homework and simply wants to add sensible real estate investments to a balanced portfolio.

Never happens. The queries always seem to come from folks who channel-surfed all night through the endless procession of infomercials from quick flip gurus. "No money down, make millions in nothing flat!" People, if it sounds too good to be true, it IS too good to be true, no probably about it. I don't want to traumatize anyone here, but just because it's on TV doesn't mean it's true.

Start with financing. If you've only bought your own residence, prepare for a shock, because commercial financing is a whole 'nother world. More expensive, too. Then you have to find property. A lot of time and effort there, including figuring out what properties can rent for. Likely to need some professional help there. Then you need to close the deal. Lots of variables on commercial property, and lots of details to be hammered out. If you've never been through a sit, bring your antacid; just don't let the other side see you use it.

OK, you bought the place. Now comes the hard part. You need to fix this fixer-upper up, which requires finding the contractors (Oh the joy of finding a reputable contractor! Someone should write a book on the process and call it Valley of the Flakes. It's almost as bad as finding a decent lawyer.) and then ramrod the project. You should consciously strive to avoid beginning drinking before sunrise.

Now find tenants. Tenants? Oh yes, any buyer down the road will want to see what the fixed-up property can bring for rent and occupancy, so you'd better fill it, at least if you're planning on recouping your construction costs.

Now sell it. With any luck, you've timed the market right.

So simple, so easy. Yeah, right. Ask yourself this: If there's so much money to be made from this, why are the hucksters spending their time selling this "advice" instead of acquiring properties? You get the picture.

The powers that be, especially that collection of smiley-faces at the Fed, keep claiming there is no real estate bubble. Well, I've watched the number of homes owned for purely investment purposes double over the last few years, and to me that means the big speculators are on the board, which translates as "bubble." And they are speculating that people who watch too many infomercials will take these turkeys off their hands before the whole thing goes South.


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