This LA Times article discusses middle class investors who are putting their money into real estate:

The astounding rise in home values is enticing many middle-class Californians to bet on dirt, gambling their retirements that they can do better with property than with any other investment.

They’re cashing in retirement funds, selling stock and taking out second mortgages. They’re pouring the money into real estate, often in distant states, often without seeing the property.

Back in the 80s in Texas we had the oil boom and bust. In the late 80s, I sat on a civil jury. In the case, the plaintiff was a fairly small investor who had bought a house for rental property when the economy was good. He was suing the bank that had repossessed (or was in the act of repossessing) the property. This guy really had no case, but apparently his young lawyer had convinced him that if they took it before a jury, the lawyer’s astounding power of persuasion might win.
The plaintiff’s lawyer played the little guy vs. big faceless corporation card. His primary claim was that the plaintiff did not know that the house backed up to a major expressway (Mopac) and was therefore less valuable than he thought.
After a more deliberation than the case deserved, we found in favor of the bank.
At the time, I kept thinking: who buys a house–even as rental property–without walking the property enough to know that the back yard abuts a freeway? I’m still sure that the plaintiff’s claim of ignorance was a lie, but after reading this article, I understand that the investor probably thought he couldn’t go wrong with real estate. I’m afraid the people investiing in real estate in the current boom markets will find themselves in the same boat as this guy did.

Categories: Economics