I am now at the age where the doctors and lawyers that I meet seem awfully young, however, some of the recent real estate developers I have encountered seem even younger.

Many of today’s future-Donalds are first time developers, often barely out of college and armed with some seed money from friends and family, or from a couple of good years on Wall Street. Like the day-traders of the 1990’s, this real estate boom makes everyone, including these noveau-developers, seem brilliant, since all they have to do is convert an existing building into condominiums, and they walk off with a profit and seed money for the next project.

What scares me is how so few of these people entering the development market today have an understanding of basic real estate fundamentals because they were still in elementary school during the last down-cycle. Valuation and analysis of these properties take a back seat to verve and bravado.

There is a limited collective memory of what can happen when things don’t go well. Does anyone know how many day-traders from the late 90’s are still trading?

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2 Responses to “Real Estate Day Traders”

  1. martin tessler says:

    John-the “limited collective memory” you refer to is self-evident by your own comment that the kids were in elementary school when the previous downturn in real estate occured. What this generation has yet to experience is the effects of inflation on the economy-a phenomenon that has yet to be recorded under the Bureau of Labor Statistics CPI that has been deflowered of truly measuring inflation ever since the BLS & Fed substantially reduced the weighting of energy and food in the CPI index several years ago. Now the chickens will soon be coming home to roost as $3+ per gallon gas and its cascading effect thru the economy-we will feel it severely this winter-will siphon off disposable $$ that found their way to the real estate speculation boom. Those who bought housing as a primary residence will weather the storm but those who bought for investment or speculation are likely to feel the impact. We have yet to come to the fork in the road that says continued spending by the US on Iraq and reconstruction in the Gulf can go on simultaneously and sooner or later Mr Greenspan or his successor is going to have to confront the interest rate dilemma or we wil ultimately have stagflation as we did back in the 1970’s when 18% short term interest rates prevailed. History always has a way of repeating itself because each generation must play out its own profligate mistakes as they do not learn from the past. What most of the real estate investors seem to have forgotten is that real estate is a cyclical business -always was and always will be-you just have to be lucky enough to surf the crest of the wave and hope you do not get into a wipe-out.

  2. An excellent story, John. In our Westchester market we are seeing a number of “day flippers,” i.e. close on a house, and listing it the next day for considerably more money. No renovations, not even a paint job. None to my knowledge have ever made a dime after closing costs are factored in.

    Marty Tessler is correct that single family homeowners will survive the inevitable downturn due to the substantial equity that most enjoy. For small fry commercial/multi family owners who are paying huge multiples, well, the RTC is awakening..watch out!