Bad Decisions in Real Estate

I remember hearing the story of a wealthy man of few words. He was miserly with his resources and that included the number of words he would dispense for advice or explanation. When asked how he made his money he replied, “Good decisions.” The interviewer pressed on with a follow-up. “How did you make good decisions?” The man of means answered, “Experience.” Which of course forced the next question: “How did you gain the experience?” To which he grunted, “Bad decisions.” In real estate, there are unlimited opportunities to gain experience. Unfortunately, as the wealthy man implied, experience is often gained as a result of bad decisions. A lot of folks wish they could turn back time and reverse a decision to buy a property or at least choose a different loan product. While experience can often be painful, it isn’t the end of the world. The trends of real estate values and all the forces that influence those values are easier to track than the forces of nature that drive global warming/cooling. One thing is certain: Values are sure to rise over time. Even a bad decision today can make you look like a genius given enough time. Talk to anyone that bought property in the 1960’s. Most people that bought their first home in those days were stretching their financial limits to buy a $12,000 3 level split entry house on a cul-de-sac. Even if their neighbor bought the same house for 20% less, in the end they all came out smelling like roses as long as they held the property long enough. One must keep in mind the amount of actual investment and not the purchase price to accurately reflect on whether or not the experience gained was from a good or bad decision. The best way to correct a purchase at the top of the market is to buy another property at the bottom of the market. So, what are you doing reading this when you should be out looking for a bargain?

Contribution by Larry Refsland, who has seen many properties go from good to better, with a little patience. He has real estate in Minnesota and Texas.