Recipe for a Real Estate Disaster
The other day while reading some old posts, I came across the name Casey Serin and realized no one had mentioned him in the media for a long time. Remember the guy? He bought about a dozen houses (if I remember right) all over the United States and kept borrowing from one to pay off the other or credit cards. The idea was that he flip homes and keep going and eventually make a ton of money.
While this strategy may have worked in a better market, (there are those who have been immensely successful flipping homes for a profit. You have only to look at the presenter of “Property Ladder” - Kirsten Kemp.) However, I think it was more than a bad market that ruined him. I think in the end all of the homes have ended up foreclosed and Serin is in debt upwards of a million dollars. Very sad story, but I think there was no way it could have ended. It just had all the ingredients of a recipe for disaster. Want to avoid your own real estate disaster? Then read on.
Recipe for Disaster #1: Not Talking to a Varied Enough Crowd
Serin claims he learned all about real estate investing in the seminars real estate coaches hold in hotels conference rooms almost every month. I’m sure you’ve seen the advertising. “Come and learn how to make money in foreclosures!” “There’s a gold mine in real estate right now…. watch this free video and learn how to make it happen!” and so on. Full disclosure: I have attended some of these seminars myself. While I’m too cheap to go attend the weekend seminars which promise all the secrets as opposed to just the choice few the presenters give you to whet your appetite for the free ones, I must say I was also pretty put off by some of them.
But personal tastes (and gag reflexes) aside, some of these presenters and real estate coaches have some pretty good information. And - processed well - one could potentially do well under these ideas. However, I think it’s very immensely important to also cross check idealism with the real world. For example, if you have been in a room with salespeople all day, take a break and talk to some friends. Or ask a real estate professional if what the real estate coach says is even plausible. No joke: I once received an offer on a listing that was completely illegal to have written which included huge amounts of cash back to the buyer after closing that would never hit the HUD-1. The offeror’s name? John Doe. No lie. Of course it wasn’t his real name. I’m guessing he was copying it from a sample contract handed out by one of these “coaches.” Had he spoken with someone else besides just the “coach” he would have known this offer was illegal and the very least he could have done to lend himself some upfront credibility at least would have been to put his real name in the offer!
Recipe for Disaster #2: Not Knowing the Market
This might be the one thing that most home buyers who relocate find the most troubling. And it is a valid fear. When you don’t know the area you plan on moving to, you are bound to find some surprises along the way. And usually after you have bought the home. Or when you are in the throes of love on a home you have in escrow. That is a bad time to learn about the market.
Ideally, if you are buying real estate in an area you know nothing about, you would try to get as much information about the place as possible. If you intend to live in the area, the information would be of a different kind: Who are the neighbors? What are they like? What is the demographic? What jobs are available? Which is the closest store? And so on. If you intend investing in real estate in an area, the questions are completely different. These would involve questions like, how long homes take to sell? What listing strategy do agents use? What kind of homes are in the neighborhood? Would I be overbuilding and lose value if I put in granite? Are most homes fixers? And so on.
Serin made the cardinal error of just buying real estate willy-nilly all over the country with no awareness of the local real estate markets. No matter what anyone says, the fact is that all real estate is very, very local. So to become a real estate disaster, all you have to do is forget the old adage “location, location, location.”
Recipe for Disaster# 3: Doing too Much too Soon
Many of the real estate investors I know look like they spend their days doing nothing. One day, I will get a call from them saying they want to refinance a certain property. And then, months after, nothing. But somehow, they end up with a handful of properties that begin to look like gold. Years later, these same people that looked like armchair critics have a real estate portfolio that is the envy of beginners like me. What did I miss?
Without doubt, a lot of buying and holding of real estate is speculation. For speculation to work in your favor, you must know how to weigh options and think critically of houses before you buy them. Serin did none of this. If every house looks like it could make you money, you need to stop and breathe. Reconsider and set some criteria houses should follow for you to buy them. Decide on a number you would want a home to get you - either in rent or resale value. This studying and thinking require time. Real estate investing is not something to be rushed into and that’s exactly what he did. To avoid taking a loss on one home, Serin went and bought another one as the value of the first one dropped. When, really, he should have taken some time to relax and think about it.
Of course, this in no way ends the recipe for real estate disasters. Because there are more. Come back tomorrow to learn more of what not to do!
