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COMMERCIAL LENDING NEWSLETTER

You are receiving this letter because you are one of my Spartans - my top-producing brokers and investor clients - of whom I am allowed to have 300. Removal instructions are below. Today we’ll discuss certain lessons we have learned from past real estate crashes.  As always, we have lots of cute, clean jokes, funny pictures, and a video of the best of Norm Macdonald.

Joke Du Jour

"In Saudi Arabia, a 14-year-old boy was detained for dancing to the Macarena. You know, I don't say this often but I'm going to side with the Saudi government on this one.” — Conan O'Brien

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Doctor Joke

Carpooling to work, a man got increasingly stressed with each trip. After a week of panic attacks, he went to the doctor. "I'm fine on bridges, in traffic, and even in the dark after a long day," the man explained. "But when I go through the tunnels with those three other guys, I feel like I'm gonna explode. Am I crazy?” "Not at all," the doctor said. "You just have Car-pool Tunnel Syndrome."

- Today's Observation -

Lessons From Past Real Estate Crashes

Real estate crashes seem to hit about once every ten to fourteen years. It’s been thirteen years since the Great Recession in 2008, so we about due for the next crash. What might set off the next crash? The value of Bitcoin and other cryptocurrencies could suddenly tank.

Here’s another possibility. If the dollar started to fall sharply, the Fed would be forced to raise interest rates. Mortgage rates increasing sharply might easily cause a real estate crash. Why might the dollar start to tank? We’re printing trillions and trillions of dollars, while perfectly healthy workers sit at home. We all personally know some couch sitters.

Here’s another reason why the dollar might fall sharply: Suppose several American and Chinese destroyers were to exchange missile fire, and the exchange exposed the woeful state of American missile technology and our lack of missile inventory. Suddenly the world would realize that the U.S Navy is very beatable. Skeptical? Did you know that four Chinese warships sailed just 3.1 miles past the coast of Alaska yesterday? Yesterday!

The reason why real estate will crash again is unimportant. The point is that the next crash is about due. Here are some lessons from prior crashes:

1. While the next real estate crash will be terrifying, real estate will not fall to zero. During the S&L Crisis, real estate fell by 45%. During the Dot-Com Meltdown, real estate fell by 45%. During the Great Recession, real estate fell by 45%. Anyone want to guess how far real estate will likely fall during the next crash?
2. These real estate crashes do not last forever. They last about two years, and then suddenly real estate starts to sharply recover - very sharply.
3. Real estate doesn’t fall by 45% and then languish at this low point (nadir) for several years.
4. Instead, real estate tends to fall by 45% and then - bam, like one of those magical bouncy balls - it bounces quickly and sharply higher.
5. Within a year of bouncing off its nadir, real estate will have recovered to 80% of its former high water mark.
6. Nine months after that, real estate will surpass its prior high water mark.
7. The lesson is to be patient and confident.
8. The absolute dumbest words ever spoken in the history of real estate investing are the words, “There is no point in throwing good money after bad.” The second dumbest words were, “Here, hold my beer.” Haha. Over the past 41 years, I have seen scores of small syndicates abandon foreclosures, only to see the subject property almost double in value just 18 months later. Got a negative cash flow? It will not last forever.  

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Robbery Joke

A robber breaks into a house and ties up the woman and the man. The robber asks where the jewels are located, and the guy responds, "I'll give you everything! Please, let her go…” Robber replies, "I only care about the jewels! I won't hurt you if you give me what I want.” The guy wails, "I beg you, please let her go!” Curious, the robber responds, "Wow, you must really love your wife.” Confused, the husband responds, "What? Oh no, my wife is about to get home!"

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Expert Joke

While working as a radiology technician in a hospital emergency room, I took x-rays of a trauma patient. I brought the films to our radiologist, who studied the multiple fractures of the femurs and pelvis. "What happened to this patient?" he asked in astonishment. "He fell out of a tree," I reported. The radiologist wanted to know what the patient was doing up a tree. "I'm not sure, but his paperwork states he works for Bob's Expert Tree Service.” Gazing intently at the x-rays, the radiologist blinked and said, "Cross out the word, 'Expert.'"

On a Personal Note

I live in a small town called Orangevale. It’s a wonderful community with very caring people and neighbors. They are always trying to bring the community together and hold networking functions all of the time. 

One a month the grange hall right around the corner from my house puts on a free concert. It is within walking distance. They do it on Friday nights and they call it “OV Summer Nights”. It has a huge grassy area where you can bring your own chairs, blankets, and ice chests. They also have food trucks and 5 or 6 booths that sell clothing items, food, crafts, etc. It opens at 6, and the band plays from 7-9pm. We went for the first time this past Friday and it was a blast, and the weather was perfect!

Video - The Best of Norm Macdonald

Final Funny

An old geezer became very bored in retirement and decided to open a medical clinic. He put a sign up outside that said, "Dr. Geezer's Clinic. Get your treatment for $500. If not cured, get back $1,000.” A competitor named Dr. Young, who was positive that this old geezer didn't know beans about medicine, thought this would be a great opportunity to get $1,000 so he went to Dr. Geezer's clinic.

Dr. Young: "Dr. Geezer, I have lost all taste in my mouth. Can you please help me??"

Dr. Geezer: "Nurse, please get 5 drops from the bottle from drawer 12 and put it in Dr. Young's mouth."

Dr. Young: "Aaagh! -- This is gasoline!"

Dr. Geezer: "Congratulations! You've got your taste back. That will be $500."

Dr. Young gets annoyed and goes back after a couple of days figuring to recover his money.

Dr. Young: "I have lost my memory. I cannot remember anything."

Dr. Geezer: "Nurse, please bring the bottle from drawer 12 and put 3 drops in the patient's mouth."

Dr. Young: "Oh, no you don’t, that's gasoline!"

Dr. Geezer: "Congratulations! You've got your memory back. That will be $500."

Dr. Young (now having lost $1,000) leaves angrily and comes back after several more days.

Dr. Young: "My eyesight has become weak -- I can hardly see anything!!!"

Dr. Geezer: "Well, I don't have any medicine for that, so here's $1000 back" (giving him a $10 bill).

Dr. Young: "But this is only $10!"

Dr. Geezer: "Congratulations! You got your vision back! That will be $500."

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