First, force lenders to relax their standards in order to make everyone a homeowner, whether they have a down payment, good credit and a steady job – or not.
Once the loans start going bad because the people can’t pay, launch a massive PR offensive that casts defaulting borrowers as victims and banks as villains. Encourage more defaults in this way. Keep this going relentlessly for five years.
Launch a major legal and regulatory offensive to block foreclosures and encourage more borrowers to default by providing government mandated benefits if they do. Let the log jam of distressed properties pile up to the sky.
Sue the villains and extract billions to spread around to the victims. Reward defaulting borrowers with cold cash to reinforce that the stigma of mortgage default has been completely removed.
Create a government program to convert the massive log jam of foreclosures into rentals. Offer institutional investors a sweetheart deal with discounts and attractive government financing. In return, require investment funds to convert the foreclosures into low income housing and Section 8 (government subsidized) housing
Further reward the foreclosed borrowers with rent controlled housing in the same neighborhood where they owned. (Maybe even rent them the same house they defaulted on. That would be perfect!)
The (Intended?) Results:
Lenders will exit the home mortgage business. If they can’t take foreclose, they can’t lend. If they can’t rely on a borrower’s sense of obligation to repay, they can’t lend. As the basic social contract of personal responsibility to repay debt is broken, all historic underwriting algorithms become obsolete. They can’t lend.
Rental rates will be undercut by government rent controls in cities with a high concentration of foreclosures. This will drive private investors out, and cause home prices to decline as it become much cheaper to rent than to own in those markets.
Create the largest government controlled and subsidized housing project in American history, complete with a million loyal voters.
There are a lot of ways to invest your money, but which strategy is the right one? Think of the various investment approaches as existing along a continuum. At one extreme we have day traders and at the other extreme we have wealth managers.
Day traders want almost instant returns and are willing to take greater risk to get it. They also try and trade on the vibration of the market. Whether a stock is trending up or down, whether the company is growing or shrinking, is less relevant than whether the price is volatile. Find a quirky situation that causes price fluctuation and ride the roller coaster. It works, as evidenced by the number of successful hedge funds that create billions in wealth based on this concept.
Wealth managers are on the other end of the spectrum. They accumulate assets. Slow and steady. Boring but reliable. The objective is to build a large pile of money over a lifetime. It works, as evidenced, by the number of individuals who secure retirement with this approach.
Most people find themselves seduced by the immediate gratification of the former and simultaneously know they belong in the latter.
In real estate, the equivalent to day trading is buying a foreclosure and flipping it. People do make money doing that, but it is more of a trading business than an investment strategy. Unfortunately, too many investors fall into this approach by default. I’m not sure if it’s simply human nature, or if all those late night infomercials have made an impression. The bottom line; it is not the way most real estate wealth is created.
In truth, day trading is a total mismatch for the housing market. The pace is wrong. The expectations are faulty. It’s like driving a dragster in the Indy 500. It’s like asking a sprinter to run a marathon. It’s like trying to microwave a pot roast. It’s just not a good fit.
Wealth management, the concept of building something huge over time, is a perfect fit for housing. More and more of the investors I meet get this. They are not trying to buy low and sell a little higher. They are trying, and succeeding, at getting wealthy over time.
They understand a few key fundamentals:
• Buy low and sell high by timing your buys when the market is down and selling when it is up.
• The American economy will come roaring back at some point.
• People who own a bunch of houses are rich.
Patience has become a virtue again. This is a very good thing, so don’t worry that your buy-and-hold business strategy is a little boring. Boring is the new sexy.
Please follow the link below to take a brief survey on your attitude toward real estate as an investment. I will compile the results and post them here. Thanks! CLICK HERE FOR THE SURVEY greg
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