Thursday, December 30, 2010



Yesterday’s (i.e., Tuesday, 12/29’s, page A4) Wall Street Journal treated its readers to the tale of a 27 year old real estate “investor” who decided to walk away from his under-water mortgage loan despite his having had, according to him, “no difficulty paying the $5,000 monthly mortgage on the three-bedroom unit in a gated complex with a gym and a pool.” Walking away was “…a no-brainer, once you do the math,” this wunderkind proclaimed.

One supposes that if one were to dispense with the ethics of the situation and look at things from a completely amoral, or worse, financial perspective, stiffing the other side of a completely voluntary transaction would be a “no brainer.” But this piece is not being written to opine on the ethics of abandoning one’s obligations when it becomes financially advantageous to do so. As usual, I see an angle on this story that most don’t. The real estate “investor” who is the subject of this article

runs an investment firm that buys up foreclosed properties and resells them. He said he realized months ago his home would take years to recover its value but decided only six weeks ago to stop making payments.

This same savvy real estate “investor” bought his own home, the condo on which he stiffed his lender, for $875,000 four years ago with $90,000 down (which probably seemed like a gargantuan down payment during those excerebrose years in real estate, but I digress). The home is now worth about $450,000.


The guy top-ticks the market, takes a 50% hit, and only realizes the gravity of the situation “months” ago, yet still has the audacity (or mental paucity) to call himself a real estate “investor.” Given this level of acumen in the real estate “investor” “profession,” is there any wonder that we wound up in the financial soup in which we continue to swim?

And one more thought…

The guys who call themselves stock “investors” are now almost unanimously proclaiming that the stock market, after a “spectacular” 13% year (S&P 500) in 2010, is the only place to be in 2011. Why, they assure us, why get nothing on your cash when you can earn a 2% dividend along with all the upside potential of the stock market? When you hear such advice, please remember the degree of expertise implied by the moniker “investor,” whether that noun be modified by the (in this case) adjective “stock” or “real estate.”

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