Suze Orman: Financial Power

The financial guru riffs on today’s real estate markets and the biggest mistake real estate practitioners make with their finances.

August 1, 2007

What do you think of the work that real estate practitioners do for consumers?

ORMAN: I’ll say it forever: Good real estate agents are worth their weight in gold. Every agent I ever had in all my property purchases, I’ve loved. They were vital and necessary. One way to be a good agent is to help your clients and not entice them to buy more than they can afford. If clients want something they can’t afford, good real estate agents say: “Even though it would mean more money for me, I don’t think you can afford this home. I see you have no money to put down, high credit card debt, and a low credit score. I don’t think you should buy right now. Keep my name and number, and when things turn around, let me hear from you again.” You say that to a client, and you’ll have a client for life.

How much of the average person’s financial portfolio should be in real estate?

ORMAN: That depends on your finances, but if you’re looking to purchase investment real estate, you have to run it like a business. Do you have the money to pay for the mortgage, expenses, and property taxes if somebody you lease to can’t pay? What if they’ve trashed your place and you need money to fix it? I don’t have a problem with buying real estate right now but only if you have the working capital to keep that business going. On the issue of percentage of real estate in a portfolio, I have friends who love real estate. One friend has done incredibly well. She has the majority of her investable assets in real estate, with more than enough liquid funds so that if tenants don’t pay, she can carry every property she owns for at least a year. That’s what she’s comfortable with.

What’s the biggest mistake real estate practitioners make in their own financial planning?

ORMAN: They spend money as they make it and don’t think the income stream will ever end. Then they hit a hard patch and freak. When they’re frantic because they need that sale to get paid, they pressure consumers. Consumers can feel that, and it repels them. When consumers are around an agent who feels pressured, they go to an agent who’s powerful and who they know will do the right thing. You close more sales when you don’t need money, and you don’t need money if you’ve been smart with money when the times were good. People sense your power. The more powerful you are, the more people come to you. What makes me so powerful is that I don’t need money anymore. I can tell people what I think. I’ve turned down more than $2 million in speaking engagements in the past few months because I didn’t want my name associated with the entities asking me to speak. That money’s gone, but I don’t care.

How serious is the subprime mortgage problem?

ORMAN: It’s as bad as people perceive it to be. Reality doesn’t matter, believe it or not. All that matters is people’s perception. In this case, laypeople perceive it to be true, and that has an effect on the real estate market. It’s not good. Of course, real estate is specific to the market, and there will always be areas where real estate is just fine. But I don’t think the real estate market will recover for another year or two. Perception is everything.

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freelance writer

G.M. Filisko is a Chicago area freelance and former editor for REALTOR® Magazine.