The Amateur vs. The Alligator

My money is on the 'gator... Where's yours?

Kiyosaki rubs his hands together and drools just a bit over the coming feast of slow roasted Effed Borrowers.

"All over the U.S. there are stories of a rise in real estate foreclosures. Many people who took those exotic mortgages -- borrowing 125% of home value or choosing adjustable-rate mortgages -- are struggling to make their payments, and some aren't making it."

"The people who are in the most trouble are flippers -- people who aim to buy low and sell high within a short space of time."

"In the coming months, I predict we'll see an increase in people dumping real estate they can't afford. They'll be forced to sell because they'll be eaten alive by a phenomenon known as negative cash flow. Investment properties that you have to feed money to every month are fondly known as alligators -- if you can't afford to feed the property every month, it eats you."

"I know of one so-called real estate investor (and I prefer to call people like him speculators rather than investors) who has three homes he thought he could flip for a profit -- but he priced them too high."

"Now, $7,500 comes out of his pocket every month to feed the negative-cash-flow alligators. The problem is, he and his wife don't earn that much a month. Their three alligators are literally eating them out of house and home, consuming the profits they made from other flips -- and their savings."

"To add more pain to the misery, they still have to pay the capital-gain taxes they made from their previous successful flips. They're toast. The alligators are eating them alive. They can't afford to feed them, and they can't afford to sell them because the prices they paid for these alligators are more than they're worth today."

"And this is only one story -- out of who knows how many. Over the next couple of years, keep your eyes open for some great bargains."

"Now is not the time to be an amateur."

"It's the amateurs who jump in when the market is hot."

"Amateurs who come late to the party --(and you know who you are...) eventually donate their money back to the professionals."

"Many were buying condominiums off the plans, which means the projects were yet to be built, in the hopes that when the homes were completed, they would sell for a tidy profit. The trouble is many of these flippers, lured into the market by stories of people making a huge killing earlier with a similar strategy, are now the ones to be slaughtered."

"If you recall, the same thing happened around the year 2000 as amateurs jumped into the stock market, buying up tech stocks or any IPO with a dot-com after the company name."

"A year ago, I sent out a warning to investors, especially flippers, to cash out quickly. I received a lot of irate e-mails from people who thought I was turning on them. They thought I was spreading bad news."

"Little did they know that by forecasting a real estate downturn, I was spreading good news -- good news for real investors and bad news for amateur alligator wrestlers."

And this just in....

This is quite a shift for our friend Leslie...

“Leslie Appleton-Young, chief economist for the California Association of Realtors, said she no longer uses the term ’soft landing’ to describe the state of the housing market, but has yet to found a way to characterize current conditions."

US News & World Reports is having the same conversation, this is a regular talk of the town topic...

“‘The fact that this number of metro areas, representing such a large percent of the total single family market–is extremely overvalued should be a cause for concern,’ said Richard DeKaser, chief economist for National City.”

“Real estate prices eventually correct themselves. And unfortunately for homeowners, it often takes years before home prices start to rise again, especially after a big run up. ‘ the average duration of these adjustments is 3.5 years,’ says DeKaser.”

“So what about families who recently bought into one of these ‘extremely overvalued’ markets in hopes of turning a fast buck? ‘I extend them my deepest sympathies,’ says DeKaser.”