I speak with a number of real estate investors that own duplex, triplex, or fourplex properties and they expect to get 2007 pricing for their property, even though it is 2012. They are stuck in 2007. When I tell them that I think their property would sell for a range of value, they are upset that the market won’t pay them more for their property.
For some owners, this is bad news because they bought in 2006 or near the peak of the real estate bubble. When I tell them the current market’s assessment of their property they are underwater on their investment property.
For other owners that bought prior to the real estate bubble, they still have a significant amount of equity in their property. This equity may be earning a very low return when compared with other investment alternatives.
One of my favorite shows is ABC’s Shark Tank. On the show aspiring entrepreneurs and inventors pitch their ideas to a team of wealthy investors or “sharks”. The entrepreneurs have to sell the Sharks on why their idea is going to make money and be a good investment.
On many of the episodes a Shark will tell the aspiring entrepreneur that although he/she likes the person or the investment, he/she cannot invest because they are a disciplined investor. Kevin O’Leary frequently refers to his money as “an army” that he likes to send out making sure that they bring back more than they left with.
Living in the past is detrimental to making wise decisions about the future. Eventually prices may get back to the level of 2006 or 2007. The question is: How long is the investor willing to wait for those prices? How many better investments are you going to miss because you are waiting for the market high to come back?
What motivates people to hold on to an investment even if it is not generating optimum returns?