Schadenfreude

Schadenfreude is a word that I've seen appear more and more frequently lately. Maybe it's because of the rockiness of the real estate industry. Maybe it's because it's becoming a new fad. Maybe it's just because when you are thinking about something, it tends to stick out at you (selective perception). We'll get to the meaning of the word in a second.

A common wisdom in investing is "a rising tide floats all boats". The general concept is that when things are going well all investors succeed, no matter how flawed their plan. Anyone could have made money by investing in dot-coms in the late 90's. A monkey could have picked dot-coms and tripled his money. The same thing happened with real estate in 2000-2003. Every investor, speculator and flipper made plenty of money.

Warren Buffet is credited with scribing the corollary to the above rule. He said "when the tide goes out, you can see who isn't wearing shorts". He was saying that when things get bad, you can rapidly tell the investor with solid plans from those who are just floundering along. The winners continue to survive, but the losers collapse. While the stock market crash in 200 hurt nearly everybody in the US, the most devastated were the individual investors who had no idea what they were doing. Their portfolios were demolished because they didn't actually know how to seperate true value from irrational exuberance.

The tide is going out on real estate. Now we finally can find out which investors have a solid plan in place, and which ones were just flipping with no understanding of the market. Now we find out which homeowners have avoided playing with their equity, and which ones took out loans like they were candy.

Schadenfreude is a German word that means "to take pleasure in someone else's misfortune". Other people's misfortune is never really a great thing, even if it's largely deserved. However since I am human and prone to human weaknesses, I have found myself taking some joy in the blogs that expose "investments" gone bad. We can all learn a lesson here.

First on our list is the father of all deals-gone-wrong. Meet Casey at www.iamfacingforeclosure.com. I've mentioned him before so I won't go into too much more detail.

Close to my beloved DC is the Bubble Meter. The photo near the top of the post is from their archive.

Then we have the blogs that, through sifting MLS databases, have found flips gone bad.

The best of them, in my opinion is probably OC FlipTrack. They do a spectacular job of showing homes, their purchase dates, price histories and even their HELOCs.

The next up Bubble Tracking also does a good job of showing what a bad deal these people got themselves into. He provides you with the percentage loss each property has generated (if it were sold at the current price).

Short but sweet is the mantra of Flippers in Trouble. This site doesn't waste time or space, they just give you the numbers. At the moment, their top find is a poor sap who'll be taking a $600,000 loss before any commissions.

Since Irvine seems to be a very popular place, we can also visit Irvine Housing Blog, who gives us a variety of real estate news in addition to the Failed Flops he's Found. He also uses the term Schadenfreude in his blog description.

And last, but not at all least we have San Diego Market Monitor, who doesn't give you a photo of the property in question, but makes up for it with links to the county assessor's office.

The sad part of this story is that while some of the speculators will be able to absorb their loss and move on, many can't. Taking advice from self-proclaimed "gurus", they've over-extended themselves and are headed down a road to financial devastation which will undoubtedly reach into all other aspects of their lives as well.

Are you interested in real estate investing? No problem, there's still money to be made. The good investors, with careful research and planning, are going to continue to turn a profit. That being said, it's also an extremely dangerous time to make a mistake in your investments. In a typical market, even a poorly planned real estate venture has a solid chance of nearly breaking even. In today's market, a poorly planned misstep can easily cost you hundreds of thousands of dollars.

Oh, and for the love of God, don't be another idiot flipper. If you intend to flip a house, at least try to add value to it before you jack up the price.