Agents Realtors

I would like to introduce a few elements that caused the crash in real estate and to put things in perspective for homeowners and real estate investors:

Greed and Fear - greed being the stronger component

Real Estate is a leveraged investment when financed - it can appreciate or depreciate

Velocity of money - how fast money circulates in the economy - government and banks control this by using fractional reserves and policy

Government policy intervention - can change direction of investments pretty fast - foreclosure laws, ordinances

Real Estate - not a liquid investment - cannot be converted quickly into cash

Construction Real Estate buying - speculative investment as it took 1-2 years for homes to be built in a fragile market.

It began with our Federal Reserve injecting cash into the banks in preparation of year 2000, it continued with banks multiplying the effects by using lending and fractional reserves which increased the amount of money and the velocity of money. We had too much money chasing too few goods and at very low interest rates. This money had to be invested - it was irresistible for banks as they were making large profits and irresistible for the typical person as there was an abundance of cash/home equity and the possibility to multiply the wealth very quickly. The FED and the Banks created a monster and the speculative real estate investor was the accomplice.

When the FED and the Banks realized what happened, and tried to drain reserves and pull money out of the economy - they halted investments in real estate industry and brought everything to a halt and prices of real estate began crashing down. The banks cancelled the home equity lines for homeowners and speculators that were waiting for homes to be completed could not flip them and lost their investments. Prices continue falling because banks were leverage not 8 to 1 ratio, but they used special derivatives and basically they leverage 25-25 to 1, therefore in a falling home price scenario, they had to sell real estate investments faster and faster to raise equity so that they could meet regulatory requirements for capital. It was an impossible task and many banks have failed and they were taken over by the government at taxpayer's expense under the guise that banking was too important to the economy and they could not fail.

So the government has been injecting capital into the banks and other large firms to maintain status quo and in the process to save banking while the ordinary citizen would assume this debt as part of the American national debt. The ordinary citizen - the middle class person that did not speculate is suddenly hit by a higher debt owed to the government - why do we call it debt - because it has to be repaid via taxes, no equity left in the homes because of crashing prices in the neighborhood. Businesses were hurt as consumers were being cautious with their money and layoffs begin and increase due to less demand - unemployment grows - and it weakens the tax receipts by government at every level - they begin to reduce services and layoff people because they cannot meet their budgets.

Where do we go from here? It is both a personal question and a societal question. Unfortunately the government has it wrong over and over again because the people in power are very corrupt. They feel invincible, they feel as if we are their minions and they cater to a select group of people that believe money, power and prestige are more important then human value, common sense, education etc. Furthermore, they squander important resources trying to redistribute capital either via grants - yes grants as in free money to buy real estate or by subsidizing social programs which create dependencies.

Government has it wrong on both counts. Home ownership of real estate is very important and needs to be cherished and enjoyed by those saving and creating capital for investment and it is natural to expect a return on your hard work - a return on investment.

It is equally important for homeowners and investors to understand that leverage works both ways and it is much healthier and more solid to save the capital needed to buy a home and have continue saving to ensure that enough resources are available in case of a crisis. You can build a cash flow business with real estate - just don't do it too fast by taking on too much debt.

You will live a happier life and a healthy life if you can be very disciplined in real estate investing.

Call Fulcrum Realty LLC today and speak with Dorin Frai at 954-663-5944 when contemplating a real estate transaction in South Florida.

Dorin Frai has over 20 years of real estate experience coupled with banking and appraising experience and is very active in the South Florida real estate market. Whether you buy or sell call Dorin Frai with Fulcrum Realty LLC at 954-663-5944. We handle short sales, bank foreclosures, waterfront investments, luxury homes. Please register on our website at http://www.fulcrum-realty.com/ for more information.

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