I always find it interesting to go back and see what people were saying about the future...especially when the future they are talking about is our present.
Well below is a video I found on YouTube with Suzy Orman the personal wealth guru that has sold lots and lots of books and tapes. Here Suzy is talking with a Los Angeles real estate agent who goes by Staci. Apparently in 2006m Staci earned $136K and when this was filmed she was hoping to break the $40K point.
Obviously, Staci had a bad year in 2007, like so many of us in the real estate industry. Staci had started living life large with the purchase of rental property and having a pool built on her own home...which she managed to finance to the $600K level with an Option ARM, a 2nd HELOC and a 3rd for the pool.
Turns out she had already lost her investment unit to foreclosure. Suzy takes a detour to address real estate investment and gives some sound advise that real estate investment really must be treated as a business with cash reserves and not dependent on the month-to-month collection of rent to pay the overhead.
When Suzy Orman comes back to Staci she listens to the details of her personal situation and then tells her she has little choice but to pack up and find a less expensive lifestyle...even if it means moving away from Los Angeles.
Now remember, this was 2007.
In my opinion Staci did have a legitimate hardship, as a single mom with two daughters - aged 9 and 15. OK, so she went over the top and started living large when the market was good. Apparently, she had enough commission in escrow to pay for the pool when the rug got pulled out from under her.
So my question here...in both hindsight and the reality of todays market...was Suzy's advise right or wrong?
Make sure you listen to see what Suzy predicts about the future of the real estate market and I'll tell you right now she was dead wrong...but the rest of it...this is what I want to know what you think, so please leave your comments below the video.
Until Next Time, Have a Blessed Day,
John Occhi, ePRO & Five Star Certified REO REALTOR® www.JohnOcchi.Com Hemet - San Jacinto Valley, CA The Excellence in Real Estate Team @ Allison James Estates & Homes 2281 W. Esplande Ave, #102-B Next to "Starbucks" San Jacinto CA 92582 (951) 654-5550
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I do agree her advise is good advise, considering the circumstances we are aware of.
As far as the timing of the market, I understand it was nopt yet mainstream headlines, it was going on around us. Most of 2007 I was doing Short Sales and by November, I knew we were in for a ride that I projected then would last 3 to 5 years.
John - I agree with the advice she gave the Realtor; she got in over her head, caught up in the exuberance of the time. But Suzy's prediction of a returning market in a couple of years missed the mark--of course she's in good company. Few saw the depth of this housing crisis.
The Realtor made some very unwise decisions. It seems that she made several mistakes.
1) Plan conservatively when you have volatile income. When your main income source is quite volitile, it is best to consider the potential highs and lows of your income. Setting aside at least 6 months is a good idea.
2) As a landlord it is necessary to have cash reserves. There are many things that can occur when renting property. In spite of good screening a tenant might cause significant damage and it takes time to evict a tenant. Major repairs might be required at unexpected times as well. Several month of cash reserves would be highly recommended in this situation as well.
3) When you are making a good living, it is always a good idea to save for the future. It sounds like this Realtor had nothing put away in a retirement plan either or other investments.
While the Realtor didn't have a crystal ball when she built the pool, she was living beyond here true means and gambling on a very good market.
Between the two a year's worth of income set aside was good advice.
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She is right on. There are very few people you can look back, see what they said and years later find out they are right.