Amidst all the hand-wringing about people losing their homes to foreclosure, or investors seeing their equities wiped out and their debt beginning to exceed the value of their houses, an important fact seems to be overlooked: In probability, homeowners were able to buy their homes with very low down payments. Their monthly payments were probably less than the rents for comparable properties once all the tax savings were factored into the mix. And they totally controlled the quality of life in houses where they weren't answerable to a landlord. So what is looked on by the media as a personal tragedy boils down to having enjoyed a lifestyle that they couldn't afford for a time, and now they must return to Kansas and confront real life.
Of course, some of these poor deprived homeowners took advantage of their unearned equity bonanza and refinanced it to pay for expensive cars and luxurious living. Not only did they not earn the money they spent, but they also will not pay much of it back. I have a hard time feeling sorry for them.
Most of those who speculated on rising house prices deserve very little sympathy. In many instances, they obtained loans with very little down payment and without the need to prove their ability to pay or the value of the collateral for these loans. Unlike the homeowners described above, they didn't refinance their homes to buy toys, they used the funds thus obtained to buy additional houses and to pyramid their “net worth.” Now that prices are dropping, they are paying for their greed by seeing their new-found “wealth” melt away. Certainly they are disappointed (as I was when the same thing happened to me in the 1980s), but they deserve no pity. Had they sold out and captured their profit when I advised them to in my newsletter, they would now be on easy street; but they succumbed to greed and held on a little too long. Both of these groups are doing the wrong thing today.
When a new rider is bucked off a horse, unless he climbs right back into the saddle, he'll be afraid of horses all his life. The same holds true for pilots and drivers involved in wrecks. It's particularly true of those who have seen their equities and dreams of an opulent future wiped out, whether in the stock or real estate markets.
What to do? First of all, learn the lessons this epoch has taught. Those who borrowed too much to buy too much have seen their wealth simply disappear. Those who invested in something they didn't understand or control because some promoter hustled them into a bad deal are now embarking on what could be years of anguish trying to get back to where they started. And those who “bet” their savings on continued price rises without understanding the nature and degree of the unseen risks may never have enough money to speculate with in the future,
UNLESS
They take the lessons they have learned and put them to use right away to “get back on their investment horse” before they become too afraid to take advantage of the market we are now experiencing. Here's a simple list of DOs and DON'Ts:
Do use Options to bet on appreciation with minimum cash involved.
Don't use debt that requires monthly payments.
Do concetrate on getting all your invested cash back into your pocket by buying and selling until you are only gambling with your prior winnings; then continue to do this to take some of your gains off the table each year.
Don't believe that anybody on earth will sell you a real map to a real gold mine. If such a mine existed, nobody would be trying to show you where it is for a tiny percentage of its value. That includes just about every migrant guru without a physical home base who holds a “free” investment seminar or who “invites” you into a good deal.
Do take the time to invest in yourself by choosing and listening only to mentors who don't need the money they make from books and tapes to survive.
Do be willing to apprentice yourself to the movers and shakers in your community to get them to show you how they became rich.
Do continue to avail yourself of real facts from real people who are making real money doing the things that they advise you to do. Where do you find them? On the website you are reading right now.
