Are We Humble Yet?


Last week’s meeting of the Las Vegas Real Estate Insider Club was rehab-presentationtypical in many ways. We had the usual mix of real estate agents, lenders, experienced, novice and wanna-be investors. There were the updates on the economy, national and local real estate markets, and a presentation by one of the foremost experts on the Las Vegas area. However, for me, this meeting stood out because of a few simple words.

The most important part of these events is often the time before and after the actual meeting when people have the opportunity to network with one another. It was after the meeting when a real estate agent and investor named Sara approached me. We chatted for a few minutes and she wanted my opinion on a specific real estate situation. She then asked me a very simple, yet profound question: “do you think people are more humble now?” I have been thinking about her query for days.

The Greater Fool Theory

During the happy time of the boom years it seemed like everyone was making a killing in the real estate market. So many people fancied themselves as sophisticated real estate investors because they had purchased a house or two or three and made money. Unfortunately for many, the extent of their skill was the ability to sign their name on the dotted line and pay too much for a property while securing financing from some lender who couldn’t find a way to give it away fast enough. It seemed it didn’t matter how much a fool paid for a house because there was an even bigger fool who couldn’t wait to pay even more.

We know what happened next. The real estate bubble burst. The zero down liar loans disappeared and the days of buying real estate being as simple as getting a haircut were gone. Foreclosures are everywhere as real estate prices collapsed and mortgage gimmicks came back to bite these neophyte investors. These people have surely been humbled and a great many have left the world of real estate investing for good. But what about the truly savvy, experienced investor who did things the right way?

Collateral Damage

Many long-time, experienced investors took perverse delight in the demiseforeclosure of the wanna-be tycoons and were happy to see them go. While these amateurs may have had a lot to do with the bubble and its aftermath, things were not going to return to normal because they were gone. The current state of affairs in real estate is a brave new world and many of these veterans have felt the wrath as well.

I know of many cases where these investors built portfolios of properties with plenty of equity looking to grow their net worth through steady appreciation and realize current income from the cash flow they received. These people have been devastated by the sharp price declines and frozen credit markets. Their seven and eight figure net worth has been reduced to a shadow of its former self. They are not alone, the Federal Reserve (article) reported that in the first quarter of 2009 the net worth of American households dropped by a whopping $1.33 trillion.

There seems to be a new economic realty emerging. People are reducing their expectations and revising their financial outlook. Foreign luxury cars and McMansions are no longer considered a birthright. People are becoming more financially aware and looking to save more and reduce their debt. In many ways these are good things.

So yes, Sara, we are more humble.

When you are as great as I am it is hard to be humble. – Muhammad Ali

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1 Comment

  1. Thanks for mentioning the meeting in your post Rich. Yes, I agree, we have all been humbled by recent events. But sometimes humility is a good thing. It allows you to evaluate your weaknesses and turn them into strengths. Thanks for your invaluable insight both on this forum and at our meetings.

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