Their one foreclosure sale gained a profit, and they think this second purchase was a low enough price to gather a profit. It remains to be seen if they are really chasing the market down. The only person she knows in the Phoenix market is her cousin, who builds high end homes, and as we discussed, that market is still hot. So she has a very limited and rosy colored view. My guess is by December, their most recent purchase will be a loss, after improvements, because prices are dropping so fast. They are Rich Dad Poor Dad followers, but I think they stopped reading him after he got sour on RE.

By the way, I have very good friends in Phoenix who were just visiting. He is a RE lawyer, and he is involved in big transactions. His view is that residential sales have really slowed, will plateau throughout 2006, and will pick up again in 2007. Meanwhile, his commercial and retail projects are going strong. So he is a little bit worried, but he is so busy with this big client who keeps developing, that he doesn’t have any major worries. Since they are on vacation, I didn’t want to upset him by telling him that retail development lags the economic slowdown by up to 9 months. My belief is that by next summer, we will no longer have any retail or commercial projects starting, sicne the recession will be in full swing.

I told his wife that he should diversify. Get in foreclosure and REO deals, or defend builders who will get sued, lenders, etc. It’s time to diversify so he can keep supporting his family.