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April 24, 2009
It may seem like ancient history now, but not long ago the mortgage industry was turning ordinary people into millionaires. Real estate, and mortgages in particular was a late nineties, early 2000's global phenomenon that nobody ever anticipated ending, or even slowing down. How quickly fortunes are lost, and entire industries are eliminated.
Real estate investing became an obsession. How often was "you can't lose in real estate," repeated? This obsession nurtured an abandon that drove people into investments and projects that they were not prepared for. Our banks and mortgage industry was encouraging reckless borrowers, and rewarding lenders that continued to originate new business.
Management and evaluation of risk is a major part of any successful real estate investment strategy. Risk occurs in many different ways at every stage of the investment process. Real estate was once considered risk free investing, when in reality, without knowledge, experience or preparation, real estate can be a very poor investment. The price of the property, with the leverage involved by the need to borrow to make the investment, or purchase does not lend itself to risk free investing. Without experience and knowledge earned by having worked in real estate for years, you are at a disadvantage.
Now lending is continuing, and the majority of us NJOY our homes, and we live in them. This is still a large investment, but one we can and do manage. Sub prime lending and the mortgage backed securities have hurt banks, and funds, but we will still buy homes. We are just watching people that should only own one home, stop speculating on buildings, and markets that they do not work in, or understand.
This recession may not be gentle, but the real estate bubble has burst. This is an economic challenge we will survive. Many of us will be stronger. On a personal level, it as refocused a lot of friends, colleagues and myself. Focus on what we know, and what we know will reward us. The "get rich quick," mentality of real estate novices attracted to stories of success flipping homes has ended. I believe now is the time for all of us to get back to the slow and steady work and rewards of building businesses that yield revenue every day.
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