Tuesday, January 04, 2011

Farook's Decline

I once knew a man named Robert who was good at making money from real estate. 'First,' Robert said, 'find a rapidly rising real-estate market. Then find someone who owns property but has no idea what it's really worth. Offer them enough they think you're overpaying, and they can't afford to refuse, but not so much that they get suspicious. Of course, your offer is much, much less than the property is really worth, and you sell the property a little below actual market value before you actually pay the sellers.' But Farook didn't understand any of this: he tried to find someone who'd sell him property for half its real value, so he could then re-sell for 90% of its real value and make a fortune. I tried and tried to tell him this wouldn't work without some modifications, but he wouldn't listen, and he never sold a single property.

Meanwhile, the laid-back landlords of Dubai all disappeared. Farook was leasing flats for $500 a month when market rates were $1,000, then subleasing them for $850 + 5% commission. But the landlords finally saw that Dubai prices were booming, and raised the rent to $1,000.

Farook tried some 'bait and switch' tactics: he'd show someone a $2,000 a month flat, then get them to sign a lease on the now $1,000 a month flat paying $1,500. He made money one time, but he lost that tenant's future business. And the tenant told his friends, 'Don't go to Farook.'

Farook considers himself an honest man: he always gave the tenant a flat, unlike some crooks who'd show a flat when they had nothing, take the tenants' money, and ride off into the desert leaving the tenant with nothing. Farook never did that. But, at the end, the flats the tenants ended up with were NOT the flats the tenants expected. But at least there was always a flat, and all Farook's customers had a place to live.

My old friend Robert complained that, after a boom, real estate prices would fall back to normal, but it was impossible to make money: buyers, seeing the decline, wanted to pay less than market, and sellers, thinking of the halcyon past, still had no idea of the current market, but now wanted much more than market. So, after making money for a few years, Robert had to suffer through long dry spells. But at least Robert knew just what he was doing, unlike Farook.

And Robert's Rules apply to Dubai:

The Dubai landlords who once asked $500 for a $1,000 market-value flat now ask $1,000 for a $500 market-value flat.

And Farook hasn't rented out a flat for two years.

So now Farook has a job trying to preserve the Arabic language, at the behest of a Sheikh. The Sheikh founded an institute, but after the initial funding, provides no support. The A/Cs in the institute have mostly failed, and there's no money for maintenance. Which is OK now, but will be a major problem come summer. And, while the Sheikh asked Farook to help preserve the Arabic language, the Sheikh seems to think Farook will do this out of sense of obligation to the language, not as an actual paying job.