Real Estate Investing Basics

Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble

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301 Articles Written
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 [...] View the full article: Top 5 Mistakes Made By Real Estate Investors During the Housing Bubble on The BiggerPockets Blog. This content is Copyright © 2017 BiggerPockets, Inc. All Rights Reserved.

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Joshua Dorkin is a serial entrepreneur, investor, podcaster, publisher, educator, and co-author of How to Invest in Real Estate. He started BiggerPockets to help democratize the real estate investing landscape for himself and others, aiming to make it accessible for everyone, regardless of income or education. Today, BiggerPockets is the premier real estate investing website online with over one million members and reaching over 70 million people with the message of financial freedom through real estate investing. Joshua, along with his wife and three daughters, make their home in Denver, Colorado, and spend any time they can traveling, exploring, and adventuring. Read more about Joshua’s story in 5280 and Inc.com.

    Shaun McLane
    Replied over 12 years ago
    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.
    Shaun McLane
    Replied over 12 years ago
    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.
    Michael Chantrel
    Replied over 12 years ago
    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.
    Joshua Dorkin
    Replied over 12 years ago
    Michael – I’m glad you’ve found the article. Unfortunately, you’re right. People will never learn.
    Joshua Dorkin
    Replied over 12 years ago
    Michael – I’m glad you’ve found the article. Unfortunately, you’re right. People will never learn. Reply Report comment
    Joshua Dorkin
    Replied over 12 years ago
    Michael – I’m glad you’ve found the article. Unfortunately, you’re right. People will never learn.
    Cade
    Replied over 12 years ago
    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.
    Tantowi
    Replied over 12 years ago
    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. Reply Report comment
    Tantowi
    Replied over 12 years ago
    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.
    Iván
    Replied over 12 years ago
    Hello! I’m a blogger from Spain. Your blog it’s very nice and really useful. I add you to my faves. Regards 😉
    Mark
    Replied over 12 years ago
    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.
    Joshua Dorkin
    Replied over 12 years ago
    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.
    Joshua Dorkin
    Replied over 12 years ago
    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. Reply Report comment
    Harry L
    Replied over 12 years ago
    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. Reply Report comment
    Harry L
    Replied over 12 years ago
    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. Reply Report comment
    Harry L
    Replied over 12 years ago
    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.
    Harry L
    Replied over 12 years ago
    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.
    Court
    Replied over 12 years ago
    This is definitely going on in Utah right now. People are getting fanatic, which means that it will probably start slowing down a lot.
    Joshua Dorkin
    Replied over 12 years ago
    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.
    Joshua Dorkin
    Replied over 12 years ago
    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.
    Dave
    Replied over 12 years ago
    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.
    Sara
    Replied over 12 years ago
    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.
    robert alagna
    Replied over 7 years ago
    Thank you! You are right on every point you make in my experience! If you are not lucky enough to have a mentor for a real estate agent, it will be like asking an insurance salesman whether you need insurance or not… There may be some principled people out there, but they are as rare a great property… They say that great investors utilize great teams, though…
    robert alagna
    Replied over 7 years ago
    Thank you! You are right on every point you make in my experience! If you are not lucky enough to have a mentor for a real estate agent, it will be like asking an insurance salesman whether you need insurance or not… There may be some principled people out there, but they are as rare a great property… They say that great investors utilize great teams, though…
    Mia
    Replied over 12 years ago
    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.
    Lars Jensen
    Replied over 12 years ago
    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.
    Anonymous
    Replied about 12 years ago
    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.
    Terry Sprouse Fixer Upper Blog
    Replied about 12 years ago
    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 . . . Reply Report comment
    Terry Sprouse Fixer Upper Blog
    Replied about 12 years ago
    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 . . .
    Guest
    Replied almost 12 years ago
    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.
    Guest
    Replied almost 12 years ago
    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.
    Guest
    Replied almost 12 years ago
    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.
    Vancouver Real Estate
    Replied almost 12 years ago
    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.
    Joshua Dorkin
    Replied almost 12 years ago
    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.
    PT from Prime Time Money
    Replied almost 12 years ago
    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
    Alex - Portland Real Estate
    Replied almost 12 years ago
    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.
    Alex - Portland Real Estate
    Replied almost 12 years ago
    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.
    Franco
    Replied almost 12 years ago
    thanks for the article it`s very interesting 🙂
    uk property investor
    Replied almost 12 years ago
    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!
    Layla
    Replied over 11 years ago
    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.
    Portland Real Estate
    Replied over 11 years ago
    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. Reply Report comment
    Portland Real Estate
    Replied over 11 years ago
    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.
    Portland Real Estate
    Replied over 11 years ago
    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.
    Portland Real Estate
    Replied over 11 years ago
    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. Reply Report comment
    Cindy
    Replied over 11 years ago
    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
    Dr. Lowell Worthington. Ph.D.
    Replied over 11 years ago
    Number 4#, Emotionally Desperate, characterizes much of human behavior. As you advise a little distance from the frenzy of the crowd is usually warranted.
    Real Estate Resource
    Replied about 11 years ago
    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
    Brandi
    Replied over 10 years ago
    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.
    Brandi
    Replied over 10 years ago
    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. Reply Report comment
    Brandi
    Replied over 10 years ago
    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.
    Brandi
    Replied over 10 years ago
    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.
    Michelle Rae
    Replied over 8 years ago
    Its going to get even uglier in 2011.. It was reported that some ( contrarians) believe that the foreclosure rate will be as high as 25% more than 2010..
    WT
    Replied over 8 years ago
    Great points! I agree with Michelle Rae-its going to get worse. I have a feeling its going to put more people out on the streets which usually means more crime. Its a vicious cycle,