Wednesday, May 7, 2008

Vulture Investing

Having played the vulture capitalist in real estate for a few years now I would like to suggest, along with the FT, that those contemplating a similar path in the US consider one crucial fact -- you don't know what you are doing! Okay, fair enough, as the article points out, some of these people do know what they are doing:
Those entering the vulture business right now, inspired perhaps by business magazine covers, will need distractions... because they are not going to get rich quick. They may, indeed, get poor slowly, along with their limited partners.

I had an interesting conversation a week ago with a Palm Beach County real estate investor. He had moved there three years ago from suburban New York, having made some money over the years, principally in commercial properties. I was intrigued by what he and his partners were doing to take advantage of the values on offer down there on the Gold Coast.

Perhaps there is a sort of paradox at work in vulture investing that makes it truly profitable only for a few who really understand how it works; either things aren't that bad and will bounce back quickly, in which case there's really not that much money to be made in the recovery to begin with, or things are going to get much worse and there will be way more problems than were anticipated, meaning that many investors enter too early without realizing what they will have to sit through. This may be the same paradox of having a "liquidity crisis with a lot of liquidity".

No comments: