Don't believe everything you see on television...especially the Real Estate infomercials! - Posted by Rose

import · August 30, 1999, 3:02pm

Re: If you think education is expensive - try experience. - Posted by Rose Thornton

Posted by Rose Thornton on August 30, 1999 at 15:02:43:

Dear John:

Thank you for your thoughtful comments. You are articulate and gracious. However…I do disagree with you on a couple foundational issues.

You said “Many investors were hurt by TR86. MANY were not. Some profited substantially from the opportunities. Strategies are shaped by education.”

Rose speaking - I’d say most investors were hurt by TR86. I don’t know who could have been helped. Equities were swept away by changing laws and tax reform. There were horrific financial losses.

I haven’t met an pre-1986 investor yet who said “Thank-goodness the gov’t took away the financial tax incentives and collapsed the values of our real estate by 15-50%!”

How do you [how can you!?] prepare for something that’s not happened before? (TR-86 - complete revamp of existing tax code) You can’t! I still maintain no amount of education is going to prepare you for sweeping tax changes and military cutbacks and recession.

If education alone determines the difference, why does anyone ever lose money in the stock market? How about the man who invested in carburetor rebuilding companies? Who knew fuel injectors would quickly make carburetors obsolete? Investing is filled with such examples. We can’t predict the future. We can only make educated and informed decisions based on past performance.

When I bought real estate in 1983, what I heard (again and again) was that real estate had continued to increase in value every year since the end of WWII. That was 40 years of history! We also heard that the tax incentives would never be annihilated, because to do so, could destroy our nation’s economy. Well, they did (change the tax code) and we did go into a severe and prolonged recession.

Folks investing in real estate today don’t even have 40 years of such history to rely on. In the 1980’s (post TR86) real estate went DOWN in value in many regions. In theory, I built my real estate portfolio on a more solid basis (more favorable history) than most of today’s investors.

You also said “when Boeing shut down for a while is a prime example. We always here about the billboard put up that said “would the last person to leave Seattle please turn out the lights”.What we don’t here is the incredible profits made by Canadian investors and others that follwed a different strategy.”

Rose speaking again - I don’t doubt investors coming into a depressed market can make sizable gains. My own Grandfather bought a veritable mansion in Southern California in 1933 for $6,000. The house sold in the 1980’s for over $500,000. The point is though, the guy who sold Grandfather that house in 1933 probably lost a lot of money. The investors leaving the Seattle market when Boeing closed probably lost their shirts.

The investors leaving the smoking ruins of real estate after TR86 lost a lot of money. The investors entering the market at that time stood to make money. (though I still don’t believe real estate has fully recovered from that financial tidal wave of loss)

Perhaps we need to agree to disagree.

Thanks for your comments and for taking the time to explain your ideas so fully. And I’m gratified to hear that you are helping others along the way. That’s really what it’s all about, isn’t it?

Rose

import · August 30, 1999, 8:48pm

It is all in the attitude… - Posted by Matthew Chan

Posted by Matthew Chan on August 30, 1999 at 20:48:38:

Wow, this has got to be the best thread I’ve ever read in Newsgroup II. While I myself have limited experience in R.E. currently and certainly can’t speak from personal experience back in the 80’s, I can say that my mother survived the 80’s just fine even with TR-86. She never did it for the depreciation or tax benefits. She did it for the supplementary cash flow and looked at it as her retirement plan. Perhaps the fact it was supplementary, she didn’t take big losses. She did it for the long-term (and still does) and simply rides out the good times and the bad. My mother is quite stubborn and subscribes strongly to the buy-and-hold philosophy. It is so strong, she has nearly paid off most of her half-dozen or so properties. So few people see the end of those mortgages they get. Looks like she will. She only sold 1 off during the last 2 decades. She is at a point if she refinances she could get LOTS of tax free money to do whatever she wants. Either that or her income will skyrocket in a few more years when the debt service has been eliminated.

I guess, if effect, I am disagreeing with you.

On a tangent, in the business I am currently in (hi-tech), there were quite a few casualties during the 80’s as well but it was because there were military cutbacks. Also the PC and networking revolution was well under way. The thing was none of these changes happened overnight and there were lots of discussions, articles, news, etc. concerning these matters.

But I noted that so many people put their “heads in the sands”. They complained and worried but did nothing about it. They held their breath and hoped the axe wouldn’t fall on them because they couldn’t let go of their pensions, retirement plans, benefits, vacations, etc. Well, the axe did fall, HARD, all over. But there were was lead time to adjust or at least find an exit.

People could have changed into a different industry, started retraining, or did something different. Instead, they did nothing. They waited until the worst happened THEN tried to do something else. That was the worst time to change when they are at their weakest.

I truly believe the future is written in the past. So many lessons can be learned and so much pain can be prevented.

Like now in the late 90’s, so many people are being lulled into a state of calm. Things are so good right now: stock prices are high, interest rates low, unemployment low, inflation relatively in check, and economy is humming along.

Sellers and R.E. Agents are confident to the point of stupidity, enrollment in education is relatively stagnant, and people are just lazy overall.

In my eyes, this is the BEST time to make changes, to take risks, try and learn new things. If you fail or have a setback, you can still recover fine in this “good” economy. Unfortunately, the masses will wait until they are hurt before they make that change in attitude.

I guess what I am saying in a roundabout way that I do agree with John that education (along with open eyes & mind) can do a lot. There was a lot of ruckus going on in the 80’s and 90’s but I came through relatively unscathed. I wasn’t that smart, I simply kept my eyes open and when I saw something that might run me over, I stepped out of the way or ran for safety!

Without making any accusations, it sounds like you were “hit” but you recovered in your own way. I suppose if I was hit by a truck once, I would be paranoid of trucks as a rule. But because you didn’t want to get hit by a truck again, you simply got better at not being hit, period, whether it is by a scooter, motorcycle, train, or whatever. Does that make sense?

Your post has generated some great responses which I have thoroughly enjoyed. Hopefully, we can learn from each other’s perspectives. I certainly did.

Education does help but it is not always in the form of a “how to” technique. What is it they say about college? The greatest value of college is to “learn how to learn” not necessarily the subject matter itself. To me, education expands the mind. How it manifests itself is sometimes a mystery. Other times, it gives insights which I think is the point you missed.

import · August 30, 1999, 3:53pm

A busy day with many distractions - Posted by John Behle

Posted by John Behle on August 30, 1999 at 15:53:26:

I wanted to be more specific in my post, but keep getting interrupted by office staff, contractors, etc. I’ll try again.

The specifics of education that comes to my mind is watching market trends and being flexible. TR86 didn’t need to be a surprise. It was in discussion for some time and was VERY actively opposed by the National Association of Realtors. They bluntly told Congress the damage it would cause - even to the point of a recession.

Following local industry is possible too. Better yet, developing a philosphy that is adaptable and less vulnerable to downturns. For example, there are some crucial statistics that can keep someone informed as to where the market is headed before it gets there.

I like the sold data provided by the Board of Realtors. Statistics, graphs and charts tell me items such as average listing price, average sales price, days on market (extremely valuable), percentage of increase/decrease from previous figures, etc.

It is very much like the stock market.

Take Seattle again. Some investors rode the decline to the bottom, bailed out and were hurt. Some bought at the bottom. Some SOLD before the decline. Some rode it out and experienced the restoral of their equity. I do think education can make a difference as to which category these investors were in.

I personally believe a strategy should be flexible and that the “Buy and hold” strategy has limitations and is vulnerable. There are better ways to invest.

The person holding properties can be wiped out in a downturn. No question about that. Yet, in most cases, they might have been able to foresee a downturn and prepare, change strategy, balance their portfolio, increase their liquidity, etc.

I disagree with you less than it may appear. I think the “nothing down” strategy as it has been taught for years can be very dangerous.

I believe in market timing. I think there are times to buy, times to sell and also better investments. A “house of cards” that is vulnerable to someone deciding to close down a business or create massive layoffs isn’t a balanced portfolio.

Some investors have a very vulnerable cash flow, not just the equity. If a drop in rents could devastate someone, I don’t think that is a balanced portolio. Increasing vacancy factors can also signal a time to be concerned.

An agressive “buy all the real estate you can and hold on for dear life” strategy is dangerous. Sure, it goes up on the average. So does the stock market - but we can get hurt in the short run. Like the stock market, a loss doesn’t occur when a property (or stock) goes down. It occurs when we sell it at a low price.

I started with the “buy and hold” strategy and decided I didn’t like, tenants, toilets, managment, balloon payments and negative cash flows. I started selling the properties and taking back paper. Then I started buying paper. The ups and downs are radically different with paper. It is much safer, just as profitable and suits my style better. Yet, even with paper, I still watch the market, do my due-diligence carefully and practice “market timing”. Right now, for example I am very short term in my investing until after the first of the year. Most of the deals are 6-12 months and I am keenly aware of what is going on in my local real estate market as far as values, days on market, etc.