Learning from the Investment Mistakes of Others

With the economy struggling the way it is, it’s no small wonder that there have been some casualties along the way. Some investors are barely keeping their head …

With the economy struggling the way it is, it’s no small wonder that there have been some casualties along the way. Some investors are barely keeping their head above water while others have long since gone into the red. The subprime mortgage crisis dealt investors a particularly hard blow; many with investment properties have been left in the lurch after the property market took a nose dive. But there are some who brought their suffering upon themselves by being, for lack of a more tactful term, profoundly stupid. Earlier this week, we discussed how investors can learn by watching where the “smart” money is going, but it is also possible to learn valuable lessons from those graced with less common sense.

Swept up in what appeared to be a ceaselessly flourishing economy, some investors let greed surpass logical thought and got in far over their heads. And, instead of coming upon the millions of dollars they had likely envisioned when they began, they instead wound up with nothing. In fact, those who wound up with nothing may be lucky; many wind up with debt they cannot possibly repay.

Perhaps the best representative of these unfortunate debtors is Casey Serin. Dubbed “the poster child for everything that went wrong in the real estate boom” by USA Today, Serin found himself in a horrendous situation when the property market crashed. As a 24-year-old “would-be real estate mogul,” he had acquired eight properties during the height of the real estate boom in 2005.

The real problem is that he got 100 percent financing using stated income loans in order to acquire these properties; also, he lied about his income in order to qualify. This constitutes mortgage fraud, and left Casey in rather a tight spot.

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“The stuff I did is technically mortgage fraud, but it’s not officially called that until someone prosecutes me and proves that that is indeed mortgage fraud. It wasn’t like I was trying to rip the banks off and steal money. I was trying to build a business. I made a lot of mistakes and now I’m trying to unravel this whole mess,” Serin said in an interview with The Sydney Herald last year.

Serin courted the limelight in 2006 when he bought the domain name IAmFacingForeclosure.com and began blogging about his many trials and tribulations. “The aim was to try to sell the properties, find help, and hopefully help others to learn from his example,” according to the site. He was $2.2 million in debt, but on the blog he repeatedly refused to get a full-time job or pay off the money he owed to creditors, according to The L.A. Times. It’s possible that his “refusal” to get a regular job was because no one would hire him knowing his history, according to The Sydney Herald.

Serin soon became a sort of economical pariah, attracting multitudes of anti-fans—or “haterz”—to his site to mock his stupidity and revel in his misfortunes. He was frequently referred to as “the world’s most hated blogger” by dozens of online sources.

Serin’s blog was shut down in the summer of 2007 without a clear explanation, though there was speculation that it had to do with a contract he signed with his wife stating that the blog must be shut down, according to CNET News.com. Not long prior, Serin’s wife, Galina, had stated that she “was frustrated with her husband’s credit-based spending and had met with her pastor recently for relationship counseling,” according to CNET News.com. At the time that the blog was shut down, three of his properties had been sold—though not all for a profit—and the remaining five were all in some stage of foreclosure, according to IAmFacingForeclosure.com, which is now managed by a new owner.

So what can be learned from Serin’s plight? Hopefully nothing that most sensible investors don’t know already but, even so, it doesn’t hurt to go over the facts. Here were his primary mistakes:

  1. Buying eight properties in rapid succession. Again, as a new investor who had not yet successfully flipped a home, he might have been better served to try his luck with a single property first so that he could get a feel for how the process worked. Then, if that one property hadn’t panned out so well, he wouldn’t have ended up nearly as deeply in debt as he did.
  2. Lying on his mortgage application. If it isn’t possible for someone to get approved for a mortgage by stating their actual income, there’s probably a good reason for it. Not to mention that it’s illegal and could bring the FBI calling.
  3. Over leveraging. Serin owed more on these properties than they were worth because he took out 100 percent mortgages on every single one of them. If he had purchased one or two properties at 80 percent loan-to-value, he might have been able to keep himself out of trouble when the market collapsed.
  4. Negative cash flow. He had too many mortgages and related expenses to pay and not enough money coming in to cover them.
  5. Banking on appreciation. Serin assumed that his properties would appreciate because, up until that point, the market had been doing so. Investors who know what they are doing may predict which properties are likely to turn a profit, but simply buying a home in a burgeoning housing market does not guarantee good returns.
  6. Poorly thought out exit strategies. Had Serin taken the time to work out exit strategies before he got himself into this mess, he might have at least come out the other end not much worse for the wear and certainly a little wiser. Well-planned exit strategies are essential when getting into real estate investments.

Undoubtedly, Serin is not the only person in the country who found himself on the wrong end of the housing market when it crashed. He may not even be the stupidest real estate investor out there. But because he courted the public eye, he now looks that way, whether it is true or not.

Those interested in learning more about Serin may want to pay a visit to CaseyPedia.com, a wiki dedicated entirely to Serin and his multitude of bad decisions. The wiki is brought to you courtesy of Serin’s ridiculous number of haterz.

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