Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble
Author: Joshua Dorkin • URL: http://www.biggerpockets.com/May 10th, 2007 •
We’ve all been talking about the real estate housing bubble for years now. I thought it might be appropriate to look back at some of the mistakes people made in an effort to averting a similar crisis again in the future.
The 5 Biggest Mistakes Made By Real Estate Investors During the Housing Bubble
- Forgetting about the past - This is probably the most amazing mistake! As we all know, history tends to repeat itself. By not learning from history we deserve our fates. The dot-com bubble in the stock market took place less than a decade ago. People lost their pensions, retirement, homes, etc. during the bursting of that bubble, yet investors didn’t remember that what goes up exceptionally fast must come down.
- Irrational Exhuberance - Take a look at the image in my previous post about irrational exuberance from back in August 2006. It doesn’t take a brain surgeon to see that the market was WAY overinflated! All anyone could talk about for a few years was how much money their homes were worth and how much they could make buying property. Investors got lost in the hype and forgot about what is most important . . . which leads me to my next point:
- Ignoring the Numbers - It is hard to ignore all the hype and buy a property based on proper evaluation when you see every property in the country rising at an astronomical rate. This was a fatal flaw for tens if not hundreds of thousands of investors. They ignored what is most important, the numbers, and bought properties on nothing but hope.
- Becoming Emotionally Desperate - Desperation leads people to do stupid things. When everyone around you is in a frenzy, what do you do? Remember the days when properties went on the market and had 10 offers by that night? I do. Bidding wars are lose-lose situations for investors. They are powered by emotional attachments, and not by any realistic accounting for a property’s worth. Fear that the market will climb forever and that you’re missing the boat is not a reason to invest. Slow and steady people!
- Becoming Greedy - I sold a condo back in 2003 after it had almost doubled within three years. At the time I sold it, the property was way overvalued and I gladly got out. By 2006 it had more then doubled in price over what I had sold it for. While I think about what could have been, I’m glad I got out. My analysis was correct, and as I write this, the price of the property is falling back down to where it was when I sold it. Greed is a terrible thing; it blinds you to reality. Too many people complain about the losses they are taking. Had they sold their properties and taken their profits earlier on, they would not have anything to complain about. Those investors who purchased near the top of the bubble at crazy prices simply got greedy. No market will go up forever. We all know that these things are cyclical. When greed takes over, disaster can soon follow.
I’d love to hear any other theories about the top mistakes made by real estate investors during the housing bubble. Feel free to share them with us!
This post is part of Problogger’s Top 5 Group Writing Project.
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Joshua Dorkin
Charles Feldman
Ted Karsch.
Richard Warren
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble All anyone could talk about for a few years was how much money their homes were worth and how much they could make buying property. Investors got lost in the hype and forgot about what is most important . . . which leads me to my next … [...]
What a great and thorough list. It’s a shame this list wasn’t around 2 years ago to hand out to all investors before they made that 5th plunge.
[...] 5 Real Estate Mistakes(biggerpockets) We’ve all been talking about the real estate housing bubble for years now. I thought it might be appropriate to look back at some of the mistakes people made in an effort to averting a similar crisis again in the future. [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
I discovered your blog through the Problogger writing project. A great synopsis of the reasons that housing investors got caught in the falling housing market. And the next time a bubble bursts, there will be a bunch of folks who won’t have learned their history lesson from this time around either.
Michael - I’m glad you’ve found the article. Unfortunately, you’re right. People will never learn.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Save You Money by jungerTop 5 Reasons Why Building is Better than Buying by MillionDollarJourney.comTop 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin Published Saturday, May 12, 2007 8:56 AM by [...]
I totally agree with you on your point. There are so many people that look at investing as a get rich quick scheme and many people sell it that way. Then the realization comes to many that effort is required along with patience and probably another stream of income. It becomes a sad situation. If people discovered how important it is for them to be patient and realistic then they find that success and are not grateful now, but 20 years down the road…which is even more important.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
But how do you choose one agent from the enormous number on offer?
Beware off:
1 Agents who overvalue the property.
2 Agency agreements that extend for lengthy periods of time
3 Agents who pressure you into signing an agency agreement on the spot.
4 Agents offering very low or high commission rates.
5 Hidden costs.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] in the project are simply linking to the entire list of submissions. While I did participate (on another blog) and don’t ever mind new backlinks, I’m a bit disappointed that people haven’t [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
Hello! I’m a blogger from Spain. Your blog it’s very nice and really useful. I add you to my faves. Regards
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
One of the most interesting things you hear people say is “Real Estate always goes up.” It’s unfortunate that people would make terrible real estate purchase decisions based on flawed conventional wisdom. Kudos to you for selling when it made sense, not when the lemmings around you would have.
It is astonishing that people just don’t learn. While I was screaming at the top of my lungs for people to sell, they all said I was nuts. They were also saying Warren Buffett didn’t know what he was doing during the tech bubble. Sometimes, it just takes time to be proven right.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
Human Nature never changes so all markets will always have boom and bust cycles. It’s amazing how otherwise rational people can get caught up in a frenzy. I can’t tell you how many people told me that real estate was a no risk investment a couple years ago.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
This is definitely going on in Utah right now. People are getting fanatic, which means that it will probably start slowing down a lot.
Harry - They never will learn!
Court - When the frenzy starts, it is the beginning of the end, although the frenzy did last for a few years in some places.
[...] Just Teach Your Friends to Make Money Online. Partner with Them! by TimeForBlogging - Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble posted at Time For [...]
Numbers 3 and 5 really resonate with me. So many people didn’t look at the numbers and instead just used the lowest interest rate which inevitably was some crappy option ARM that is now killing them. Or like in number 5 where they overleverage thenselves because they wanted 3 houses instead of 2 because everything will keep doubling every year forever right? lol It has been a hard lesson for many.
[...] Dorkin of BiggerPockets.com wrote an article about "The 5 Biggest Mistakes Made By Real Estate Investors During the Housing Bubble". I would not exactly call it the Top 5 Biggest Mistakes, but it is still a good list of [...]
The biggest mistake a home seller or buyer can make is Listening to advice of real estate agents.
Many agents offer advice that is self-serving and manipulative rather than in the best interest of the client.
If selling a home, do your own market research and then sell the house through a discount agency online, or FSBO. (For sale by owner)
If buying a home, do your own research.
Most agents know less then the savvy wealthy clients they work for.
Most real estate agents do nothing to sell your house other than list it in a Multi list book.
They also want buyers to buy as quickly as possible because they do not want the buyer to move on to another agent, or to buy a FSBO (for sale by owner) home.
Many home buyers find their homes online, these days. Thus the agent simply facilitates entry into the home…..hardly worth a $10,000 to $50,000 plus…plus fee.
I once sold a house in a down market for $20,000 over the market evaluation supplied by agents who were either poorly qualified to evaluate a home price or who only wanted to make a quick sale.
From my perspective the house was worth that much more than the comps because of the unique location, view, and the fact that very few homes with such a view were in the town. The agents completely dismissed the homes “unique” qualities and simply priced it in line with other homes on the same block without the view.
The house sold, two days after it was advertised, to the first person that made an appointment to see it.
Prior I had screened out “lookers” by warning interested callers that my price was not flexible. I told them if they were thinking of negotiating the price, they would waste a trip.
In addition, agents will often show a house in a pricey neighborhood that may not be as sumptuous as one in a less desirable neighborhood, or that is out of the price range of the buyer. They do this hoping to convince the buyer to buy the house they can afford. This, tactic, however is a wasted showing for the home in the better zip code.
If listing agents had to show every house they listed, there would be fewer showings to unqualified buyers.
Lastly the market is a bit slow, and things are selling, now, but taking longer. At this point, most agents have been very spoiled buy houses that have sold in weeks rather than months. The slowdown irritates agents and will cause an agent to nag the seller to lower their price so that they can sell it before they lose the listing.
My advice is don’t lower the price, on the advice of a real estate agent. Only lower the price if you are a very motivated seller that needs to move quickly.
[...] Just Teach Your Friends to Make Money Online. Partner with Them! by TimeForBlogging - Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble posted at Time For [...]
There are many different ways to profit from real estate. Becoming an agent, loan officer, or broker, and bring fourth great profit. Another great way to make some money is by doing rehabs, which is when you purchase a house in questionable condition, fix it up and sell it for more than the original purchase price.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
I think this “Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble” is a good point. We are having the same problems in Denmark where I live.
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
An interesting list but in London where I live a tight supply is keeping property prices very high. This tight supply is in part caused by buy to let landlords who have large numbers of propertieson their books. Unless interest rates really hike they have no need to sell and until new housing stock hits the market (which has a signifcant time lag) propery prices will stay high for some time yet in London.
The biggest mistake I made was not keeping to a repair time-table that I had established. I bought a fixer-upper in 2003, before the price surge, with plans to repair it and sell it in 2-3 years. Had I stuck to my plan, I could have sold it at top dollar. Instead, I’m still making repairs . . .
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
[...] the height of the housing bubble, a lot of real estate investors made mistakes by buying homes that didn’t cash flow. Many people ignore the numbers and didn’t buy [...]
Housing bubbles will be likely occur everywhere until the day man lives, because whatever men touch greed and selfishness will always be there as a rule. The best way to avoid this problem is to buy a house from bigger real estate companies where the bubble is less likely to burst.
Housing bubbles will be likely occur everywhere until the day man lives, because whatever men touch greed and selfishness will always be there as a rule. The best way to avoid this problem is to buy a house from bigger real estate companies where the bubble is less likely to burst. Nowadays it is extremely important to be very cautious especially when buying a property.
Vancouver - your response makes little to no sense. Your answer to the real estate bubble is that people need to buy property from large real estate firms? How on earth is that going to help people out?
It doesn’t matter who you bought your property from - it matters what price you paid, what kind of motrgage you got, and what you can afford.
Great advice. Here are some people who did well before the bubble:
http://ptmoney.blogspot.com/2007/12/complete-list-of-cnn-moneys-tycoons-in.html
I wouldn’t agree with some of the comments about real estate agents in this blog. I’m sure there is lots of flakes out there, but I wouldn’t put all the agents in this category. Just my 2 cents.
thanks for the article it`s very interesting
the uk could be at the peak of a bubble too. property investors need to be really cautious and take some the advise from this post.
as an investor i am still buying properties myself, but i am being very careful. check all the numbers out!
I think number 5 ended up sticking a lot of people with major losses. I however was on the other end and sold at the prime time.
Sad but true… amazing how quickly we can forget the past when making decisions, especially what is for many people the biggest investment in their lives.
Thanks for this interesting article
I know a few people who fit in this blog. This market is crazy all over. Thanks for this article. I hope many will read this as it is something we all can learn from. Thanks
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Number 4#, Emotionally Desperate, characterizes much of human behavior. As you advise a little distance from the frenzy of the crowd is usually warranted.
I agree that whenever there is a hype of something even if we don’t know what’s it gonna be we tend to jump right on it without the complete knowledge of the so-much-talk-of-the-town
-Jan
[...] Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble by Joshua Dorkin [...]
Sara obviously had a bad experience with a real estate agent,but in any field of work there are people that are uneducated or slack at their jobs, so catagorizing all agents in that view I disagree . One mistake I saw was some investors putting too much money in upgrades and ammenities in a home and they could not recoupe the income back. Its like a pool..its a nice addition/ammenity but does it add much value to a homes value..NO.So on that note adding excessive marble, fixtures, bells and whistles to a home that just wont appraise or having the nicest home in the ghetto that you want to flip, but go crazy. All that matters is the bottom line..what it is appraised at, a buyer will pay, and profit.