Re occuring problems in RE - Posted by DanT

Posted by Randy Joiner-GA on June 09, 2001 at 08:35:22:

Your post reminds me of a proverb I’ve heard Frank, of course the pig in the proverb is not the same character as the pig in your story.
“Pigs get fed, but hogs…get slaughtered.”

Re occuring problems in RE - Posted by DanT

Posted by DanT on June 09, 2001 at 06:08:24:

While reading the board over the last month or so I have noticed that financing and legal issues in flipping properties keeps coming up with many new folks asking if the “gravy train” is over. I would like to offer an opinion on the issues with RE as a business.
I started in this business in 1981 by buying a duplex and living in one half. I bought the wrong property, with too many issues and no management knowledge at all. I basicly failed. I sold the property a year later and broke even. Lesson #1, RE is pretty forgiving.
In 1985 I bought another duplex. A rehab again, this time I had read about and practiced maintenance skills. This coupled with the items I learned on the first property helped me do better and make this one a success. However the economy in my area was terrible. I didn’t realize it but there was so much property for rent and vacant in my area that it is a wonder that anyone even looked at my property. But since it was a rehab and was in good condition, and even though I often would only get 4 or 5 applications, it was always rented. Lesson #2, property in good condition will always rent first.
As the 80’s went on the economy in my area did not improve as it did with most of the rest of the country. But you could buy property cheap if you could get financing or could work with assumable mortages. Lesson #3, poor economy yields good deals but money supply is short, learn to be creative.
When the 90’s arrived our economy started to finally take off. With that brought increased tax valuations as property values soared. The government took the new “boom” times as an oppurtunity to get some tax issues passed. The cost of doing business went up. People were buying houses left and right and suddenly everyone was a rehabber. We had to lay low for a few years and let the dust and cost issues to settle. Good side was there was plenty of money available. Lesson #4, economic boom brings problems with prosperity.
My point to this lengthy post is simply this. There are always issues in business. And REI is a business. It is not a get rich quick scheme as you might read in the papers or see on TV. It is a business and all true business principles apply. To be successful you must manage your resources well. You must find ways to roll with the times and still get it done. I can remember at no time in my 16 years that there were not issues of one type or another, always package with someone saying this is a poor time to get involved in REI because of (your reason here). And through it all I have bought a property every year but one and always made money. (there were more available, my goal is one a year) Just my thoughts on the matter. DanT

Re: Re occuring problems in RE - Posted by Ronald * Starr

Posted by Ronald * Starr on June 11, 2001 at 20:04:20:

Dan T----------------

I like your post. Well put, good information. Thanks.

Good Investing*****Ron Starr in OK

Re: Re occuring problems in RE - Posted by Donna

Posted by Donna on June 09, 2001 at 19:21:37:

My compliments on a post that is a realistic look at the business. I will use your post at a speaking engagement later this month.

My RE Professor’s PIG Theory - Posted by Frank Chin

Posted by Frank Chin on June 09, 2001 at 07:53:46:

I attended several RE courses in the mid 80’s, and the same issues come up.

During the inflationary early 80’s, folks here would purchase RE, and in New York, where prices always soar in good times, refi out with inflated appraisals to buy the next one. An honest appraisal just won’t do.

So when I tried to do a refi, mortgage brokers would say, we DON’T do refi’s where you cash out.

My RE Professor, who gone through many a RE cycle explained his PIG theory this way:

First, the PIG’s notices a good thing. Not satifisfied with making a decent profit, goes out of his way to make a killing. An uproar will ensue, and the PIGs spoils the party for everyone else.

Next comes the MORON beauracrats, who are confronted with the problems created by the PIGs. Usually the correct solutions requires rules that needs THINKING. Seeing if an appraisal matches the value of the property just takes too much thinking.

So instead of thinking, he says “NO ONE can do it”.

Finally, the creative REI comes onto the scene. He analyses the problem creatd by the PIG and the solution by the MORON beauracrat, comes up with a creative solution to the problem at hand.

Then the PIGs return, and figures a way to beat the system again, followed by the MORONS and their new rules, and the cycle starts anew.

This process, coupled with the need to adjust investment stategies for good times and bad, that makes investing interesting and rewarding.

Frank Chin