was just talking with a in the morning you jump out of
real estate professional in bed and walk a certain number of
Northern California about feet in certain directions and
how precarious the market for you get your usual food and
residential homes is becoming. My sanitation needs taken care of.
friend is an elderly real estate It’s probably pretty much the
broker that started selling real same (if you are at home and not
estate in the 1970s and now has on the road) every day. You
over three decades in the probably drive the same way to
industry. She has seen the prices work every morning. You do pretty
of houses appreciate radically as much the same activities each day
well as drop precipitously over to pull the pay check in or keep
prior decades. the business running. You
generally assume that tomorrow is
We were chatting about the hard going to be much like today.
money lenders who are lending at
70% loan to value ratios instead Your routine daily experience has
of 50% and just how deadly this taught you that if you do just a
could be financially. I explained few things well which means
that the reason these younger pretty much the same way in a
real estate professionals are certain way you will get your
lending at unsafe ratios is due money at the end of each month.
to a type of money thinking I In other words your daily routine
call “financial immortality.” is pretty static (doesn’t change
This type if thinking is the much) and to function in a static
tendency of human beings to environment you need to have
extend what we know about the static thinking. Something that
present into the future. is static never changes and is
immortal. The problem is that
Think about it. When you get up none and I mean NONE of our
financial markets are static they abbreviated LTV). Once they get
are dynamic (change a lot). Worse confident (static) with what they
yet when they change they often have to do to make money many are
change a lot and really fast! now lending a 70% of the value of
the project because they can
In order to survive as a real place more money in the market.
estate of stock investor you have
to have dynamic thinking. Let me The problem is that many of these
explain. I told you that there “financially immortal” thinkers
are hard money lenders in don’t remember when property
California that have been earning values plummeted up to over 50%
a good return. Hard money lenders in some areas in the 1980s in
start by either lending money to California when the Keating
builders and rehabbers at the scandal allowed Savings and Loans
going rates for hard money funds to lend at high LTVs and the real
which today are 15%. If they estate market collapsed when
don’t have money they will have interest rates rose. Right now we
people invest through them. The have a combination of radical
hard money lender pays his or her home price appreciation in
lender at a lower rate like 13% markets like California where
and keeps the 2% spread for people have been accepting
managing the money. interest only mortgages tied to
adjustable rates. The percentage
The safety in the deal is making of interest only adjustable rate
sure that the property is worth a mortgages in California is now
lot more than the hard money loan over 40% where a few decades ago
amount when the project is very few such mortgages were
finished. Many of them start originated. Other states in this
lending at 50% of the value of same predicament include
the project (loan to value ratio Virginia, Arizona, and Colorado.
lots of debt. THAT IS WHY I TEACH
What few people today know is THE ENORMOUS VALUE OF FREEDOM
that interest only mortgages were FROM DEBT TO MY STUDENTS!
a significant part of the problem
in the great depression. In the If the market does collapse and
roaring 1920’s housing prices you are a dynamic thinker you
soared and banks begin offering might do well scooping up great
interest only mortgages. When the deals from the financial
stock market and banking system immortals in their dying gasps.
collapsed and up to one third of By the way this was the same
the U.S. population lost their thinking that got so many
job house values plummeted and financial immortals in the stock
people could not sell off their market in trouble. The financial
homes to get out of these bad immortals believed The lie Wall
mortgages. A flood of Street was pushing that the stock
foreclosures ensued all because market would never come down
people were assuming the roaring during the final part of the
20s boom would just continue massive bull market in the 1990s.
because they were using The dynamic thinkers were able to
financially immortal thinking smell the bull$%^# on all over
that that says “what goes up Wall Street in 1999 and 2000 when
never comes down.” The people who all of the insiders were dumping
were dynamic thinkers cashed out their high priced stock they
their homes in the 20s and optioned for nothing on the heads
thrived in the great depression of the financial immortals!
because they were not carrying
About the Author:
Dr. Scott Brown, Ph.D. a.k.a. “The Wallet Doctor” holds a doctorate in finance and can teach you how saving the daily price of a cup of coffee at Starbucks can make you a millionaire in the stock market through long term stock investing. Dr. Brown's website is: http://www.walletdoctor.com/
