Bubble Investing in Real Estate

I'm going to give you three examples of how real estate investing mistakes can derail your plans and destroy your dreams very quickly. Imagine yourself in the following three "What if..." situations. These situations will give you an idea of just how quickly you can go from being in charge of your destiny to hanging on for dear life.

Plan A: Bubble Investing

Until the real estate bubble burst it was almost impossible to not make money in just about any market. For instance, in Florida the market was expanding so dramatically that you could buy a property based almost entirely on a fairly accurate verbal description and - even if you had negative equity to start - could hold it for a few months and still turn a profit.

More than one real estate investor who didn't know any better would jump into the market, take a call from somebody describing their property, and decide whether to move forward. So how did some of these investors make a decision if they couldn't see the property?

They would ask for a description of it.

As long as the market was skyrocketing northward at breakneck speed, the ability to analyze a deal was optional. It made millionaires out of novices who were clueless about how to make money and who were simply the beneficiaries of favorable market conditions. So what happened?

As you know, the market fell apart and the guaranteed profits went the way of the dinosaur. When that happened, all these "What if..." investors became "What now?" investors and their existence was jeopardized. Not knowing what to do, they began falling one by one like little dominoes.

These investors weren't bad people - nor were they stupid. They just didn't know what they were doing. Instead of being able to roll with the current market conditions they were rocked by conditions beyond their control. Why did this happen to them?

In short, they were well-positioned to continue making money as long as the sun kept rising every day as it had since they jumped into the market. The market, like the sun, kept going higher and higher. In their experience there was no such thing as a rainy day.

Plan "A" was making them so rich that as long as the market continued to rise that the need for having a Plan "B" never occurred to them. Do you know what else never occurred to these investors?

It never occurred to them that their Plan "A" was also flawed.

When the rains came, as they inevitably will, the only option they had was to fall to the wayside as real estate failures.

Real estate investors can make tactical errors for a variety of reasons. Unfortunately, they frequently don't realize they've made a tactical error until it's too late to change course. By then the train has left the tracks in a massive financial derailment that could take years to clean up.

When real estate investors are first starting out, many of them will rely on the guidance received from a real estate investing course, a book they've read, or a series of articles that they've seen on the Internet for advice about how to succeed as a real estate investor. If you've ever bought one of these resources, you're very aware that they almost always universally recommend that you have or develop a working knowledge of your local real estate market. As a result, a lot of brand-new real estate investors will purchase property very close to where they live with the erroneous thinking that because it's in their local real estate market that it is a good investment.

That's not always the case.

Just because a property happens to be in your neighborhood doesn't necessarily make it a good investment. However, partially out of laziness and partly because of an honest misapplication of the above principle, far too many real estate investors purchase property just down the street or around the corner from their own residence.

Stay tuned for the more of the story!!!

Peter Vekselman-experienced real estate investor and coach

www.coachingbypeter.com