“YOU CAN LOSE ALL OF YOUR MONEY…….”

It was early 80’s and I had built my net worth up to $1,000,000 and I was confident that if properly leveraged, I could own the world. I was a real estate broker and sold several million dollars of real estate year over year. Commission income was way up there.

I decided to invest more into multiple units. (AKA apartments). Rents were going up, prices per door were going up dramatically every year and in some cases, monthly. Interest rates were skyrocketing. Prime was 21% and banks were 3% over that. Small energy based town in WY. Starting to get the picture?

My mother said to me, “Be careful, you could lose all your money.” What did she know? After all, I was brilliant and what could possibly go wrong? I had my money borrowed below current market rates with a long term fixed rate loan. I had little or no vacancy and the bank had underwritten the loan with a 5% vacancy factor. What more could you want. Of course the bank wanted a personal guarantee. No biggy!

Eighty (80) units later, the bust that follows the boom happened. It was like a Thursday afternoon around 2:00 PM. Predictable, yes. But I was blind, and even if I would have seen it coming, I'm not sure I could have gotten out because of the financial picture.

Vacancy went from zero to thirty percent and those that were left either paid late or made up for it by not paying at all. They usually moved out in the middle of the night and shutting of the master meter off as they left. Freeze ups, stinky refrigerators and freezers and anything they could not fit in the car. The marketability went down faster than a chubby kid on a see saw. DISASTER.

My mother had lied to me, she told me that I could lose all of my money, she DID NOT tell me that I could go past ZERO!!!! But you can, see leverage of any kind can cut both ways.

I tell you this so not to scare you, but to make you aware that don't try to pick the highs and lows of any market but predetermine when to take some meat off the table. Unless you have a very big pocket, it is never too soon to take a profit. Pigs get fat, but hogs get slaughtered.

See if it is time to divest yourself of some of your properties and look for a shifting market and go into your next investments with less leverage.

When the cranes are in the air, investors beware! On a recent trip to Denver, I counted 13 cranes from the Interstate at one time. I cannot remember a time when there were so many multi family units under construction. All along the Front Range of Colorado I saw MF going up. Golden, Boulder, Longmont, Denver,[i] Loveland and Fort Collins, all had sticks and bricks going up and I am sure that there is a like number on the drawing board.

I am not a naysayer and I don't believe the sky is falling…..just yet, but I can see clouds in the sky and they are starting to get a little on the dark side. A lot of these developers are able to get the units built, get long term non recourse loans put in place and then sell to institutional investors.

I know you may have paid a lot of money to go to the seminar taught by the guru, but that may be your cheapest lesson.

LISTEN TO YOUR MOMMA!!

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