Changes to Distressed Real Estate Times
by John T. Reed

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The Biggest Mistakes Real Estate Investors Make

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1st edition 67 pages
2nd edition 108 pages
3rd edition 164 pages

New material added to the 2009 THIRD edition compared to the 2008 SECOND edition

• How lack of vacation home liquidity can force you to sell a good property at a bad price or enable you to get a bargain at a good price
• Using crude timing to avoid getting caught in a vacation home liquidity trap
• The American Recovery and Reinvestment Act of 2009
• More on short sales
• Detailed account of my son's 5 month search and REO home purchase 12/08 in Fairfield, CA

New 54 page chapter: “2008-2009 Developments” including:

• Big picture insights obtained at my wife’s 2008 Harvard MBA reunion which occurred during the stock market crash
• Mortgage default insurance (credit default swaps)
• Selling short (betting on prices going down) as opposed to short sales
• Hedging
• Comparison of current policies with New Deal in Great Depression
• Inflation concerns and protections from inflation
• Treasury Inflation Protected Securities
• TARP
• Countercyclicality
• Ascendancy of the income approach to appraisal in current market
• Chances of another Depression and protections from it
• Socialism is a matter of degree—we are moving in that direction
• Case-Shiller and OFHEO home stats
• History of maximum tax rates and triggering income levels in light of Obama tax rate proposals
• Going off the tax and utility grids as inflation and tax protection
• Prospects for federal rent control because of economy and Democrat control
• The new buy-and-bail syndrome
• Junior lenders who are ostensibly wiped out refusing to agree to short sales unless they get paid to do so
• New deposit insurance limits
• FHA in CA again after decades of absence due to high prices and low limits
• Subprime hurting homeowners associations
• Areas in where values have gone up
• Housing and Economic Recovery Act of 2008
• The New New Deal
• Lack of move-up buyers hurting middle price ranges
• The Housing and Economic Recovery Act of 2008
• Foreclosure OREO purchase
• The need to avoid making things worse by flailing
• 'Stimulus' package
• Opportunity in the current labor market to upgrade your employees
• Depression lessons learned for real estate investing
• Self-storage not much affected
• Deflation dangers and how to protect from them
• Worst case scenarios
• 1981, not 1932
• 40 times monthly gross (prices have been in the 150 to 250 times monthly gross range for decades) rental houses in one major city’s suburbs
• False bottom?
• Trump project folds
• and more...

New material previously added to the 2008 SECOND edition compared to the 1991 FIRST edition

• Implications of Alan Greenspan’s “froth” market
• Lack of rational behavior by the market
• Danger of outbidding idiots
• Self-inflicted Ponzi “Schemes”
• Investors buying properties sight unseen
• Extreme optimism by inexperienced investors
• Dangers of trying to predict the bottom of the market
• Danger of assuming distress always means bargains
• Leper properties
• Properties sold using legal notices
• Evergreen strategies
• Mistake of assuming recent past in near future
• Hard times make you grumpy
• Comparisons with the Great Depression
• Don’t use current trouble as excuse to wait
• The gravitational pull of net operating income on values
• The gravitational pull of substitutability on values
• Rudimentary risk management techniques
• Using temporal diversity over time to spread risk
• Analysis of the business cycle
• The emotions of the different parts of the business cycle
• Comparison of real estate to stocks
• The essential nature of real estate investment
• The lack of control compared to your own business
• The point of maximum irrational exuberance
• The point of minimum popularity of real estate investment
• The always-higher-values myth
• Properties that stay down in value forever
• The generic real estate related financial market scandal story
• The subprime crisis and panics
• Subprime foreclosures
• $4 billion profit made by two guys selling subprime short
• Mortgage Forgiveness Debt Relief Act of 2007
• Original Issue Discount Rules, also known as Imputed Interest Rules
• Acquisition of two apartment complexes in Texas in 1983
• Deeding the complexes in lieu of foreclosure back to the lenders
• Criminal law against equity skimming
• Need to avoid blank check clauses
• Ceiling on personal liability clause
• Property management while waiting for foreclosure
• O.J.’s pension and homestead asset protection
• Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
• “Perfect Storm” perspective
• Edward Novak’s pre-foreclosure approach
• Legislative backlash against foreclosure “rescue” scams
• RealtyTrac foreclosure stats
• Lenders setting lower opening bids at foreclosure auctions
• Need for instant insurance and new locks when buy foreclosures
• Lenders not cutting prices on OREOs enough
• Illegal bid chilling
• Need to verify accuracy of foreclosure abstract services
• Litigating accusation that you are foreclosure rescue scammer
• East Coast perspective on foreclosures
• Check for discount lien release (short sale)
• Removal of the Resolution Trust Corporation chapter as a result of demise of the RTC
• Larry Loftis tax lien certificate investing approach
• New chapter on short sales