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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: MulhollandDrive who wrote (3787)7/31/2002 7:03:00 PM
From: Elroy JetsonRead Replies (1) of 306849
 
OPM has always been the primary problem in real estate, real estate development, the whole deal. That's how the savings and loans got in trouble a decade ago.

I had a client 15 years ago who was building a housing subdivision in the San Fernando Valley. I showed him he was going to end up about 22% under water on the project.
His response was to just increase the assumed land inflation rate by enough to make the project profitable.
I asked him, don't you care or realize you will actually lose major money on this project?
He pointed out the 3% Developers Fee he would receive during construction, "if there's a loss that's the bank's problem."
Well it was, but he also ended up in bankruptcy himself.
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