HOUSE FLIPPING GONE WRONG
When I used to flip houses back in the day, I often worked with an extremely experienced agent who would help find the homes and write the contracts.
He was also a master at the art of the “quick fix” (new floors, cabinets, counters, appliances, fixtures, paint and a bit of landscaping work). He never made structural changes; he kept colors neutral; and he never went too “high end” with any materials. Our contractors all knew the gig too – so the formula was almost failsafe.
Except when it wasn’t. Sometimes the market would soften, and I would sell anyway in a panic and make very little money.
His advice to me in those situations though was to not sell but to rent out the home and wait for the next up-cycle – given that he had been around since the Civil War and had seen 739 up and down cycles.
If I had listened to him, I would have made hundreds of thousands of dollars more!
What I lacked was patience.
A LESSON IN PATIENCE
I borrowed the below story from the blog of a famous fund manager named Chris MacIntosh.
“Speaking of patience, this anecdote about Peter Lynch’s famous Magellan Fund is instructive:
Peter Lynch, author of “One Up on Wall Street” ran the Fidelity Magellan fund from 1977-1990. He delivered an outstanding 29% average annual return during that period.
Afterwards, Fidelity conducted a study of the fund. They found that the average investor in the Magellan Fund lost money during Peter Lynch’s tenure! How can that be?
According to Fidelity, investors withdrew from the fund during periods of poor performance. Then they would return to the fund after periods of good performance.
We said it before, but it bears repeating: patience (as well as balls of steel, let’s be honest) is key for successful investing. The biggest wins often take way, way longer to play out than you might think (or hope).”
DEAD AND FORGETFUL PEOPLE PERFORM THE BEST!
In another Fidelity Investments study referenced in this Business Insider Article, the Fidelity Investors who experienced the best performance were either dead or people who forgot they had a Fidelity Account. This prevented them from selling when markets softened.
What happens is that people not only lack patience, they panic when markets soften and sell (because “fear of loss” is one of our biggest motivators), and then buy back in when markets improve – KILLING THEIR OVERALL PERFORMANCE.
SO, WHAT IS THE BEST ADVICE AGENTS CAN GIVE CLIENTS?
Markets ALWAYS go up and down, and panic selling in a down market rarely works out best for the sellers.
I bring this up now because there is ample evidence now that some markets are starting to soften or just level off.
This is hardly concerning but for the fact that so many people have been spoiled by the crazy levels of appreciation we have seen in recent years.
Agents often share this advice with their concerned clients, and we felt compelled to blog about it to reassure any of our clients who are nervous about buying a home today.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167