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Common Sense & Real Estate Investment Risk

Ray Blain is a retired pediatrician and medical consultant, and author of a forthcoming autobiography Becoming A Doctor; My Dreams and Nightmares.

Although I received some education in economics while studying for my Masters Degree in Public Administration at the University of Southern California, I would not claim to be an expert in either economics or investing. However, there is no better general investment philosophy than using common sense and learning from past experiences.

I made money when we sold the first house we built in the 1970s, and lost money on the second when the economy tanked in the 1980s because people couldn't pay their medical bills because of income loss, so I couldn't pay our mortgages. Many of you also know what loosing money on real estate is like from the Great Recession when the housing market crashed in the first decade of the 21st century.

So what does that have to do with 2020 and 2021? As we all know we are in a viral pandemic which, because of bad federal management, has led to the greatest economic collapse since the Great Depression of 100 years ago. That Depression lasted for most people until our economic recovery was finally assisted by our industry manufacturing supplies for World War II. No one wants another World War to end this "want-to-be" Depression.

Economists are predicting a huge period of renter evictions and mortgage defaults and foreclosures in the coming months because of the ongoing massive job losses and underemployment. Current unemployment "benefits" and "welfare" payments are inadequate to pay for minimal necessities like food, shelter, and utilities, so somethings have to be allowed to "fall behind". In most cases that means medical bills, rent and mortgages, clothing, school supplies, and even food just as we did in the house collapse.

What will happen when tens of thousands of people are evicted because of none payment of rent or real estate loans? At first, landlords, banks and mortgage companies will be able to find some who will pay more for the properties, and a few will prosper in the short term just as we saw in the housing crash less than a generation ago.

The market will soon become glutted with empty apartments and homes again and prices will crash once more. Capitalists will loose billions, and banks, mortgage and investment companies, and realty offices will go bankrupt.

What will happen to stocks and bonds? Common sense tells us that we will suffer the same fate as in the first decade of this century.

What has the Executive Branch done to "improve" the coming housing crisis? It has extended the moratorium for evictions until January 2021. The result will be that rental debt and mortgage for the unemployed will just get larger and more difficult to ever repay during this delay, and the evictions will eventually occur in the worst part of winter. Common sense tells me that this is no solution, it is window dressing to delay and disguise the coming disaster.

We have had a program that was working but has been allowed to end because of attitudes in the Senate that defy my understanding.

Who would benefit if the $600/week income subsidy were to be reinstated instead of the $300 the Senate has authorized? With $600 instead of $300, millions of people would be able to squeak through the current economic difficulties by continuing their tightened economic lower-standard-of-living, but at least most would not loose their housing. This is an important win for them.

But the biggest winners would be landlords, banks, mortgage and investment companies! They would not be left with millions of empty apartments and homes that are not only not generating income but will once again become maintenance and income money losers.

Whose money would these capitalists be getting with the $600 payments? Government money! Taxpayer money! So why are the big money interests and their political allies opposing reestablishing the $600/week temporary supplemental income? Their income cash flow would continue like it has been. Are they really willing to hurt themselves and the national economy because they don't like government subsidies for citizens but want continued government subsidies to the biggest recipients of federal welfare: corporations.

Politicians need to realize that although corporations make political contributions, so do people. Guess to whom the people are donating. There are a lot more people than corporations. People vote, corporations don't. It is time that the big money interests realize that what is good for America in general is also good for them. Getting money to renters and mortgagers will actually lower the impending real estate investment risk for capitalists.

~ Raymond Leo Blain, M.D.

 


 

 

 

 

 

 

 

 

 

 

 

   


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