Sunday, July 6, 2008

Excuses Come Easy, but Success Takes Effort

I was at work today when a near and dear topic came up- investment possibilities!

The conversation centered on real estate. The declining home prices inspired someone to do some research on buying foreclosed properties. Their plan was to purchase a foreclosed property, fix it up, then resell it , or in his own words, "flip it" for a profit.

My immediate thought was the season for "flipping" is long gone. Other folks in the room mentioned that fact but not enough to completely kill off the idea. Eventually the "plan" was modified to get a foreclosed property, then rent it out until property values rise.

The talk went on for a while while I just listened in until I starting hearing the plan included real estate turning up in 3 - 6 months. I had to chime in that this real estate market has a ways to go (ie much longer than 3 -6 months) before any turn around can be anticipated. Then the conversation takes a unexpected turn....

The person doing all this real estate investment planning now decides that they want to wait until the market bottoms out, and then buy a property.

Soul: How are you going to tell when the market bottoms?
Person: Oh, I'll know. The prices will flatten out and won't go any lower.
Soul: You know there are good deals available now with the proper searching....
Person: Yeah, but if I wait, there will be more places and easier to find.
Soul: I thought XYZ was interested in getting started now? You should join up with him since he sounds like a go getter.
Person: Oh, he's only done 2 or 3 property flips- he doesn''t have that much experience.
Soul: ??...yeah....but that's 2 or 3 more than you.....
Person: (a few moments thinking)....yeah, but I still rather wait.
Soul: Don't you think you'll have more competition when everyone thinks the market has bottomed?
Person: I'm not worried....

My own experience has shown me that the perfect time for entering any market is VERY hard to find. The least you can do is start analyzing the market and get a feel for the home property values as they change but this person believes he can just use internet search engines to look at property values. By waiting until the "perfect" time, one runs the risk that by the time you recognize it, the move may have already started some time ago.
Getting rich is typically not handed to one on a silver platter, otherwise we'd all be rich. It does require some effort and motivation.

Then the talk shifted to making the most out of your home equity, such as if a person has paid off their house, how to take advantage of the built up equity. I mentioned that one way is to take out a fixed loan and then invest that amount in something you believe will have a greater rate of return than that of the loan.

Person: What is your mortgage rate?
Soul: About 5.7%
Person: Do you think you can get a better return on your investments than that?
Soul: Yes, that's why I'm in no rush to pay off my mortgage.
Person: Then why don't you get another big loan on your house and put that in the market too?
Soul: (Feeling a twinge of annoyance but holding it back)- Look, the goal isn't to maximize your risk and put all your eggs in one basket and if something goes wrong, you lose everything. My outstanding mortgage is more than enough.

It became clear to me that some folks are more interested in getting rich quick rather than using sound judgment and planning. If they can't become rich "overnight" they rapidly lose interest and move on and usually wind up doing nothing. Of course they will look at people who have put in the work and effort and are successful and attribute their good fortune to being "lucky" or being at the right place at the right time.