Visit the new Investor's Money Journal extension website and feel the difference... just click here Investors Money Journal . See, watch, and listen to the market strategies, tips, and advices of different investment and financial experts.
Whether you are new to real estate investing, or you have just reached a "plateau" and need some ideas, these reminders will help "jump-start" your real estate investing career and get you back on track.
Surround yourself with like-minded people
"Creative" real estate is non-traditional, which means that most people don't do it this way. Thus, most people you speak with will tell you it won't work. If you tell them you heard it in a seminar or a course you bought from a late-night television "guru," they will laugh and call you "gullible."
Attorneys and other professionals will denounce it because it sounds unusual. Keep in mind that these people are either threatened by their own lack of success or are looking to protect their own butts.
The first thing you should do is join a local real estate investment club. These associations will help you keep your thoughts in the right place and prove to your subconscious that it really does work.
If you cannot find a group, form a "mastermind" group that meets for breakfast once a week. If you don't know what a mastermind group is, you should read Think and Grow Rich by Napoleon Hill. If you have read it already--read it again, again and again.
Have a team
Don't wait until you have a deal brewing to find the players. You need to find the following players on your team right now:
*Attorney
Preferably one who does real estate deals for himself as well as others.
*Title or Escrow Company
Stay away from the big name companies, and find one that caters to investors. Make sure they understand double closings, land contracts etc.
*Insurance Agent
Find one who understands land contracts, landlords, etc.
*CPA
Find one who is aggressive and owns real estate.
*Contractor
One who will give you free estimates and knows how to "cut corners" in the right places.
*Mortgage Broker
One who is savvy, creative, and experienced with investors.
*Partner
In case you need one for money or experience.
*Mentor
Someone you can call to smooth out the rough spots.
Don't talk to unmotivated sellers
This is the biggest mistake I see beginning investors make. They waste time talking to sellers who are marginally motivated. Even worse, they drive by the house and look for comps without even talking to the seller first! Never visit a house before speaking with the seller over the phone.
I love Ray Como's Mastermind Script Book. It has hundreds of questions designed to extract the seller's motivation over the phone. Heck, the course will save you enough gas money to pay for itself! [For more ideas read: How to Make Sure the Seller is Really Motivated]
Be persistent
Anyone who has ever been in sales will tell you that few deals are ever made on the first try. In fact, most deals are made after contacting a prospect for the fourth or fifth time.
Let me give you an example. I contacted a guy who had a junker house he was thinking of selling. I met with him once and made him an offer. He didn't like it. Did I stop there? No way! I called him twice a month for a year. I mailed him two more offers that he rejected. We finally came to an accord and closed this month.
Have a follow up system like a salesman. I use a program that allows me to schedule follow ups and keep a running history of calls and conversations.
Keep educated
"If you think education is expensive, try ignorance." I am not sure who first said it, but I give him credit. You can lose more money with a mistake than you can learning how to avoid one. Even if you have been at this business for years, you need to keep up with current trends and laws.
As an attorney, I have to go to seminars every year. Some are boring, but I always learn something that either makes me more income or prevents a lawsuit.
Have a plan
Don't just wander around looking for deals. Have a plan. Make X number of phone calls a week. Spend $X per month on advertising. Make X number of offers per week. Pass out X number of business cards each day.
Eventually, you start to get lucky. I mean that facetiously because luck always happens to those who are at the right place at the right time. If you plan and persist--you get lucky.
Treat this as a business
People are lured to investing in real estate because of the quick buck they are promised. Don't hold your breath; you won't get rich quick. An "overnight sensation" usually takes about five years.
I would guess that 90% of the people who take a seminar quit after three months. This is a business like any other. It takes months, even years to cultivate customers and have a life of its own.
You need to treat it like any other business. Give it time, effort, attention, and professionalism, and it will flourish before you know it.
by William Bronchick, JD
Showing posts with label Real Estate. Show all posts
Showing posts with label Real Estate. Show all posts
Thursday, November 20, 2008
How to Make Sure the Seller is Really Motivated
One of the common complaints investors across the country share with me is that they talk with a seller who sounds motivated on the phone but turns out to be a dud when they go meet with this seller.
Let's look at the ways you can make sure the sellers you meet are the best use of your time.
Screen, but don't over-screen
First, understand that you will never GUARANTEE yourself that you will only meet with motivated sellers unless you are willing to make a whole lot LESS money. Does this seem contradictory to all the strong pushes I have made in the past to only work with motivated sellers?
Here is what I mean. You will always be more effective negotiating deals face to face than you will be over the telephone. In person you have the ability to create rapport and an emotional connection with the seller which is a hundred times harder when talking over the phone.
I sincerely believe that you must qualify sellers carefully, but not so carefully that you screen out everyone who isn't an ABSOLUTE deal. It's because 50-70% of the people you talk with that might be ready to sell to you at very good price and/or terms WON'T be 100% visible to you over the phone.
For example, in a moment I will share with you a script for qualifying sellers over the phone. One of the questions will be, "What is it that you owe against the property?"
Usually if the sellers are motivated they will be more than willing to share the answer with you. If they are unwilling to open up and answer, this often indicates that they aren't as motivated. BUT this is NOT a hard and fast rule.
On one rental property I called the seller and (from a "for rent" ad the seller had placed in the paper) I asked this question. The seller said he didn't feel comfortable telling me that on the phone.
I could have taken this to mean I should cancel my appointment with him. I am glad I didn't. I ended up with a ten-year lease option on the condo for a price of $110,000. Three years later that same condo is worth $165,000 and climbing!
The bottom line is that you should screen, but not so harshly that you screen out all of your possible deals. It is a fantasy to believe that in a ten-minute phone conversation you can ever KNOW with absolute certainty who is ready to sell at the right price and terms and who isn't. My belief is that you would do well to error on the side of seeing more sellers than fewer.
All that said here is exactly how I re-qualify sellers I plan on meeting with to make sure they really are ripe for me to meet with them...
I like to re-qualify on a second phone call versus completely qualify on the first phone call.
I typically do a quick sort of people who have properties for sale or rent working through them quickly to set several appointments for later in the week. Then, in a second phone call, I spend focused time with the few sellers I have appointments with doing my final screening.
I like doing it this way because on OUTBOUND calls I make to people with for sale or for rent properties I work VERY quick to do my initial sort. It slows me down too much to try to do this initial sort AND to catch myself to slow down and do a deeper qualification with the 5-10% that merit a closer look.
Two quick points
ONE: My partner, Peter, prefers to do everything I do in one phone call. He feels comfortable BOTH quickly sorting through sellers/landlords and then taking the time to go deeper with the ones he sees as worthy of spending time with.
If this is how you prefer doing things, then you should use the ideas I will share on re-qualifying sellers at the end of your first call with the seller rather on a separate second call. Both work fine, I am merely sharing with you how I like to do it.
TWO: On calls I make to sellers who have called me off of my ads and other marketing campaigns, I almost always do my deeper qualification on my first call to them.
I use the re-qualifying call idea when working with sellers/landlords I am calling straight from THEIR ads they have in the paper or signs they have around the neighborhood.
Sample re-qualifying call script
[Note: This script assumes that you already have spoken to the sellers on an earlier phone call, talked with them for at least three to five minutes, and set up an appointment to meet with them.]
Ring, ring...
Hello?
Hi, this is ____, I was just calling back to double-check my directions to meeting with you tomorrow. It sounds like I caught you in the middle of something?
Oh, okay, well if you can just give me the zip code of the property I am sure I'll be able to look it up in my map book.
While I have you on the phone may I ask you a couple of questions?
What's the square footage of the house [or some other harmless question that gets the seller comfortable answering questions and warmed up to talking with you about the house.] How many bathrooms did it have again?
And what was it that you owed against the house, roughly?
And your payments are? Best guess?
Does that include the real estate taxes and insurance?
Now I know you told me on the phone before, but why was it again that you were selling the property? [scrunching up your face over your brow and under the inside corner under your eyes to get the right tonality-called "scrunchy face"]
And when did you want the property handled, six months? Twelve months? Ideally when did you want the property handled?
Oh Okay, that makes sense. A question for you [scrunchy face and softer voice] what were you planning to do if you didn't sell the house right away? What was your back-up plan?
Had you ever thought about just renting it out?
If they answer yes--
What do you think it would rent for?
If they answer no--
I know you don't plan on renting it out, but if you did rent it what do you think it would rent for? This just gives me a better idea of the value of the property.
At this point go back and make sure you build some more rapport with the sellers. Ask them about their families or hobbies or anything else you can get them to talk about that they genuinely enjoy and you can sincerely be interested in them for.]
Now go back and ask the following questions:
Now who else besides you is on title to the property?
If they are the only ones skip the next questions about getting all the legal decision-makers to the property for the appointment.]
Obviously we'll need to have ALL of us meeting ___[day you have appointment]___ at the property just in case we find it's a fit and I decide I want it. I just want to make absolutely certain that you and ___[other people on title] are all going to be there. Are you all?
Ask a few rapport questions again, even trying to include the other owners, so you can gather some information about them that will help you connect faster when you meet with them at the property.]
Great I'll see you (and ___[other people on title]___) on _____ at _____am/pm. Have a great day.
Is it time to meet the sellers face-to-face?
From the answers to these questions you should be able to determine whether or not the seller is BOTH motivated and has the right situation where you can help them and make a profit.
Motivation means two things:
1. A compelling reason to sell
2. Time pressure to do it fast (usually 60 days or less)
Situation means one of two things:
1. Enough equity for you to get a great cash price
2. Seller NOT needing their equity (or at least all their equity) out when you buy it from them. This means they could be flexible on the TERMS of the sale
If the seller shows both a fit in motivation and situation, I would recommend that you meet with them. If you are left with a sense that they really aren't motivated, then either cancel or delay your appointment OR throw them a trial offer right there over the phone to gauge their reaction.
For example say:
Mr. Seller, I don't know if I could do this, but what if I was able to cover your $1,400 per month payment for a while and down the road the road I cashed you out of the house at say, $177,000-178,000 is that something that we should even talk over when I come out to meet with you and see the house, or maybe not?
If the sellers say yes, follow up that question with:
I'm curious. What about me covering your payment of $1,400 per month and cashing you out at the $177,000-178,000. Would that even be a fit for you?
By this point you should know if they are worth investing your time to go and meet with them.
I hope this game plan for re-qualifying sellers helps you best use your time and close more deals.
by: David Finkel is an ex-Olympic level athlete turned real estate millionaire and one of the leading investing experts in the nation. He is a Wall Street Journal and Business Week best-selling author of over 40 business and investing books and courses, including the wildly successful, Real Estate Fast-Track and The Maui Millionaires.
Let's look at the ways you can make sure the sellers you meet are the best use of your time.
Screen, but don't over-screen
First, understand that you will never GUARANTEE yourself that you will only meet with motivated sellers unless you are willing to make a whole lot LESS money. Does this seem contradictory to all the strong pushes I have made in the past to only work with motivated sellers?
Here is what I mean. You will always be more effective negotiating deals face to face than you will be over the telephone. In person you have the ability to create rapport and an emotional connection with the seller which is a hundred times harder when talking over the phone.
I sincerely believe that you must qualify sellers carefully, but not so carefully that you screen out everyone who isn't an ABSOLUTE deal. It's because 50-70% of the people you talk with that might be ready to sell to you at very good price and/or terms WON'T be 100% visible to you over the phone.
For example, in a moment I will share with you a script for qualifying sellers over the phone. One of the questions will be, "What is it that you owe against the property?"
Usually if the sellers are motivated they will be more than willing to share the answer with you. If they are unwilling to open up and answer, this often indicates that they aren't as motivated. BUT this is NOT a hard and fast rule.
On one rental property I called the seller and (from a "for rent" ad the seller had placed in the paper) I asked this question. The seller said he didn't feel comfortable telling me that on the phone.
I could have taken this to mean I should cancel my appointment with him. I am glad I didn't. I ended up with a ten-year lease option on the condo for a price of $110,000. Three years later that same condo is worth $165,000 and climbing!
The bottom line is that you should screen, but not so harshly that you screen out all of your possible deals. It is a fantasy to believe that in a ten-minute phone conversation you can ever KNOW with absolute certainty who is ready to sell at the right price and terms and who isn't. My belief is that you would do well to error on the side of seeing more sellers than fewer.
All that said here is exactly how I re-qualify sellers I plan on meeting with to make sure they really are ripe for me to meet with them...
I like to re-qualify on a second phone call versus completely qualify on the first phone call.
I typically do a quick sort of people who have properties for sale or rent working through them quickly to set several appointments for later in the week. Then, in a second phone call, I spend focused time with the few sellers I have appointments with doing my final screening.
I like doing it this way because on OUTBOUND calls I make to people with for sale or for rent properties I work VERY quick to do my initial sort. It slows me down too much to try to do this initial sort AND to catch myself to slow down and do a deeper qualification with the 5-10% that merit a closer look.
Two quick points
ONE: My partner, Peter, prefers to do everything I do in one phone call. He feels comfortable BOTH quickly sorting through sellers/landlords and then taking the time to go deeper with the ones he sees as worthy of spending time with.
If this is how you prefer doing things, then you should use the ideas I will share on re-qualifying sellers at the end of your first call with the seller rather on a separate second call. Both work fine, I am merely sharing with you how I like to do it.
TWO: On calls I make to sellers who have called me off of my ads and other marketing campaigns, I almost always do my deeper qualification on my first call to them.
I use the re-qualifying call idea when working with sellers/landlords I am calling straight from THEIR ads they have in the paper or signs they have around the neighborhood.
Sample re-qualifying call script
[Note: This script assumes that you already have spoken to the sellers on an earlier phone call, talked with them for at least three to five minutes, and set up an appointment to meet with them.]
Ring, ring...
Hello?
Hi, this is ____, I was just calling back to double-check my directions to meeting with you tomorrow. It sounds like I caught you in the middle of something?
Oh, okay, well if you can just give me the zip code of the property I am sure I'll be able to look it up in my map book.
While I have you on the phone may I ask you a couple of questions?
What's the square footage of the house [or some other harmless question that gets the seller comfortable answering questions and warmed up to talking with you about the house.] How many bathrooms did it have again?
And what was it that you owed against the house, roughly?
And your payments are? Best guess?
Does that include the real estate taxes and insurance?
Now I know you told me on the phone before, but why was it again that you were selling the property? [scrunching up your face over your brow and under the inside corner under your eyes to get the right tonality-called "scrunchy face"]
And when did you want the property handled, six months? Twelve months? Ideally when did you want the property handled?
Oh Okay, that makes sense. A question for you [scrunchy face and softer voice] what were you planning to do if you didn't sell the house right away? What was your back-up plan?
Had you ever thought about just renting it out?
If they answer yes--
What do you think it would rent for?
If they answer no--
I know you don't plan on renting it out, but if you did rent it what do you think it would rent for? This just gives me a better idea of the value of the property.
At this point go back and make sure you build some more rapport with the sellers. Ask them about their families or hobbies or anything else you can get them to talk about that they genuinely enjoy and you can sincerely be interested in them for.]
Now go back and ask the following questions:
Now who else besides you is on title to the property?
If they are the only ones skip the next questions about getting all the legal decision-makers to the property for the appointment.]
Obviously we'll need to have ALL of us meeting ___[day you have appointment]___ at the property just in case we find it's a fit and I decide I want it. I just want to make absolutely certain that you and ___[other people on title] are all going to be there. Are you all?
Ask a few rapport questions again, even trying to include the other owners, so you can gather some information about them that will help you connect faster when you meet with them at the property.]
Great I'll see you (and ___[other people on title]___) on _____ at _____am/pm. Have a great day.
Is it time to meet the sellers face-to-face?
From the answers to these questions you should be able to determine whether or not the seller is BOTH motivated and has the right situation where you can help them and make a profit.
Motivation means two things:
1. A compelling reason to sell
2. Time pressure to do it fast (usually 60 days or less)
Situation means one of two things:
1. Enough equity for you to get a great cash price
2. Seller NOT needing their equity (or at least all their equity) out when you buy it from them. This means they could be flexible on the TERMS of the sale
If the seller shows both a fit in motivation and situation, I would recommend that you meet with them. If you are left with a sense that they really aren't motivated, then either cancel or delay your appointment OR throw them a trial offer right there over the phone to gauge their reaction.
For example say:
Mr. Seller, I don't know if I could do this, but what if I was able to cover your $1,400 per month payment for a while and down the road the road I cashed you out of the house at say, $177,000-178,000 is that something that we should even talk over when I come out to meet with you and see the house, or maybe not?
If the sellers say yes, follow up that question with:
I'm curious. What about me covering your payment of $1,400 per month and cashing you out at the $177,000-178,000. Would that even be a fit for you?
By this point you should know if they are worth investing your time to go and meet with them.
I hope this game plan for re-qualifying sellers helps you best use your time and close more deals.
by: David Finkel is an ex-Olympic level athlete turned real estate millionaire and one of the leading investing experts in the nation. He is a Wall Street Journal and Business Week best-selling author of over 40 business and investing books and courses, including the wildly successful, Real Estate Fast-Track and The Maui Millionaires.
Monday, November 17, 2008
Can Real Estate Still Be a Good Investment?
Visit the new Investor's Money Journal extension website and feel the difference... just click here Investors Money Journal . See, watch, and listen to the market strategies, tips, and advices of different investment and financial experts.
That's a question we are all asking today. Why? Because of the many stock market investors who speculated in real estate, the problems surrounding sub-prime loans with the resulting foreclosures and bank failures, and falling home prices.
If the late Dr. David Schumacher, my mentor for the past 10 years and author of the now-famous book, The Buy and Hold Strategies of Real Estate, were still around, I know what he would say because he said it during the last downturn in 1990-1995. He would tell us not to worry. This is only temporary and part of the normal cycle of real estate.
It creates bargains that can benefit you. This cycle has been happening since Montgomery Ward began offering homes for $1,500 through its catalogs. As sure as the sun rises and the seasons come and go, real estate will make those who own it rich over a period of time. He would add that now is the best time to get great deals in real estate.
The Real Estate Cycle
Real estate is still the best investment possible. It always has and always will do well in the long run. This is the fourth real estate cycle I have been through and none of the downturns were fun. However, if you have patience and look at the long term, your real estate will go up in value more than any other investment. Do not treat real estate as you might treat the stock market, worrying about the ups and down.
Since 1929, real estate has gone up an average of five percent a year; if you stay away from the obvious non-appreciating areas like Detroit, it is more like seven percent a year. At that rate, properties will double in value over 10 years with compounding. Add a federal tax benefit of 28 percent plus state tax deductions, the depreciation write-off for rental property, and the eventual pay-down of the loan and you have a strategy rich people have always used to accumulate wealth.
Flippers
Over the past 30 years I have watched many flippers who buy, fix up, and sell. I do not know many who have much net worth or are wealthy because of flipping. It is simply a very risky way to make money.
Those who have prospered are the ones who are in it for the long haul and patiently watch their properties increase in value over time. This past downturn was created by speculators who all flipped at the same time, putting too many properties on the market for sale and rental. I guarantee that over the long haul, you will always regret selling any property you have every owned.
Buy and Hold
Since time passes by anyway, the buy-and-hold strategy is a great way to become rich. Dr. Schumacher experienced at least five real estate cycles and did extremely well, acquiring an eventual net worth of over $50 million.
You just can't go wrong in purchasing an inexpensive condo, townhouse, or single-family home in a good location where there are jobs. Make sure you have a fixed-rate loan, make sure it cash flows, hold on to it for 10 to 20 years, and you have a property that has doubled or even quadrupled in value. When you need to retire, simply do a cash-out refinance to live on or to supplement your retirement pension.
For example, the first property I purchased for $75,000, a townhome in Lake Arrowhead, CA, is now worth $650,000. My first oceanfront condo, which I purchased in Long Beach, CA, in 1982 for $112,000 and used as my residence, is now worth $500,000. One-bedroom condos I purchased in Maui, HI, in the late 1990s for $80,000 are now worth $400,000. Homes I bought around the same time in Phoenix, AZ, for $75,000 are now worth twice that. I could go on and on and on.
What are your Options?
What are your options to building wealth today? The options are to buy real estate and build wealth or to not purchase property at all, to struggle a lot and have nothing to show for it.
1. You could do nothing. The 25 percent who do not own a home end up with no assets when they retire. They have a car loan and owe an average of $9,000 on their credit cards. Those who do not purchase rental property may be forced to work past age 65 to supplement their meager retirement income.
2. You can try to depend upon your retirement. The above chart shows that you should not depend on your retirement income alone to support you, because it won't. Those on Social Security or most retirement programs end up living below the poverty line and are forced to work until they drop, so that is not a solution. Other investment options are not doing so well, either.
3. Invest in the stock market. We are definitely in a slowdown (I refuse to believe we will have a recession), so the stock market is not going to do well for several more years.
4. Invest in gold and silver. They have already made their run; it is doubtful they will do much better. Gold and silver are used as a hedge against inflation and a weak dollar. It looks like oil prices are headed down and the dollar is strengthening.
5. Invest in real estate. Those who invest in real estate almost always do well. The following graph shows how the top one percent in income have acquired their wealth. As you can see, the vast majority have invested in real estate.
Don't Think Short-Term
Real estate is not designed to be considered short-term. Right now, real estate is going down in value in many cities, but it is going up in many others. It is a terrible time to sell and pull out any equity. Only about five percent of the properties are for sale. Most homeowners and investors are simply holding on to their real estate and are waiting for the next upward appreciation cycle.
The Four Greatest MISTAKES People Make in Real Estate
Real estate always does well when purchased correctly. It is people's choices and sometimes greed that mess up an almost perfect investment.
MISTAKE #1. Purchasing Property That is More Than One Can Afford
Often individuals are attracted to and purchase a home they cannot afford. They struggle their entire lives just to make the payments. Then if they have an illness, job loss, or divorce, they are in big trouble.
MISTAKE #2. Buying Properties That Don't have Cash Flow
When rental properties are going up rapidly, everything seems desirable and people purchase rental properties that don't cash flow. Often that can lead to disaster with large, negative cash flows when the market softens. Properties that cash flow are a no-brainer. They are great no matter what happens. These are the ones you want to buy and hold. Eventually they will be paid off.
MISTAKE #3. Refying Too Much Out
When prices are going up, one is tempted to take out the maximum amount allowed on an equity line on one,s home or do a cash-out refi on a rental property. That is dangerous if one cannot make the payments or support the negative. It is like abusing one's credit cards, which often ends in bankruptcy. It is especially discouraging when values drop below the loan amount, as is happening with many homeowners right now. One should not get discouraged, they will eventually return to their original value and then surpass that, usually within 2½ to 4 years.
MISTAKE #4. Getting the Wrong Loans
We have all seen the problems with sub prime loans. Those with low incomes were not the only parties using these loans. Some bought million-dollar homes in a gamble that they would up in value. Five-year Option ARMS also became popular, but they caused major problems to the investor when they reset. Loans like these should be refinanced as soon as possible. The same is true for adjustable-rate mortgages. Fixed-rate loans are the only suitable loan type for anyone who plans to hold on to his properties.
Conclusion
It is never fun to be in a down cycle and see the equity in your home and rental property slip away. However, do not be discouraged, this is just part of the cycle of real estate.These down cycles are always good times to pick up more property at great prices, but be sure you keep a reserve for unforeseen problems (such as illness or job loss) so you can still make your payments. Make sure you purchase good properties in good locations, priced below the median price for the area, in markets that have good job growth.Properties will return to their 7-plus percent appreciation and then you can watch your wealth build once again. So, don't worry. Real Estate is still the best long-term investment.
That's a question we are all asking today. Why? Because of the many stock market investors who speculated in real estate, the problems surrounding sub-prime loans with the resulting foreclosures and bank failures, and falling home prices.
If the late Dr. David Schumacher, my mentor for the past 10 years and author of the now-famous book, The Buy and Hold Strategies of Real Estate, were still around, I know what he would say because he said it during the last downturn in 1990-1995. He would tell us not to worry. This is only temporary and part of the normal cycle of real estate.
It creates bargains that can benefit you. This cycle has been happening since Montgomery Ward began offering homes for $1,500 through its catalogs. As sure as the sun rises and the seasons come and go, real estate will make those who own it rich over a period of time. He would add that now is the best time to get great deals in real estate.
The Real Estate Cycle
Real estate is still the best investment possible. It always has and always will do well in the long run. This is the fourth real estate cycle I have been through and none of the downturns were fun. However, if you have patience and look at the long term, your real estate will go up in value more than any other investment. Do not treat real estate as you might treat the stock market, worrying about the ups and down.
Since 1929, real estate has gone up an average of five percent a year; if you stay away from the obvious non-appreciating areas like Detroit, it is more like seven percent a year. At that rate, properties will double in value over 10 years with compounding. Add a federal tax benefit of 28 percent plus state tax deductions, the depreciation write-off for rental property, and the eventual pay-down of the loan and you have a strategy rich people have always used to accumulate wealth.
Flippers
Over the past 30 years I have watched many flippers who buy, fix up, and sell. I do not know many who have much net worth or are wealthy because of flipping. It is simply a very risky way to make money.
Those who have prospered are the ones who are in it for the long haul and patiently watch their properties increase in value over time. This past downturn was created by speculators who all flipped at the same time, putting too many properties on the market for sale and rental. I guarantee that over the long haul, you will always regret selling any property you have every owned.
Buy and Hold
Since time passes by anyway, the buy-and-hold strategy is a great way to become rich. Dr. Schumacher experienced at least five real estate cycles and did extremely well, acquiring an eventual net worth of over $50 million.
You just can't go wrong in purchasing an inexpensive condo, townhouse, or single-family home in a good location where there are jobs. Make sure you have a fixed-rate loan, make sure it cash flows, hold on to it for 10 to 20 years, and you have a property that has doubled or even quadrupled in value. When you need to retire, simply do a cash-out refinance to live on or to supplement your retirement pension.
For example, the first property I purchased for $75,000, a townhome in Lake Arrowhead, CA, is now worth $650,000. My first oceanfront condo, which I purchased in Long Beach, CA, in 1982 for $112,000 and used as my residence, is now worth $500,000. One-bedroom condos I purchased in Maui, HI, in the late 1990s for $80,000 are now worth $400,000. Homes I bought around the same time in Phoenix, AZ, for $75,000 are now worth twice that. I could go on and on and on.
What are your Options?
What are your options to building wealth today? The options are to buy real estate and build wealth or to not purchase property at all, to struggle a lot and have nothing to show for it.
1. You could do nothing. The 25 percent who do not own a home end up with no assets when they retire. They have a car loan and owe an average of $9,000 on their credit cards. Those who do not purchase rental property may be forced to work past age 65 to supplement their meager retirement income.
2. You can try to depend upon your retirement. The above chart shows that you should not depend on your retirement income alone to support you, because it won't. Those on Social Security or most retirement programs end up living below the poverty line and are forced to work until they drop, so that is not a solution. Other investment options are not doing so well, either.
3. Invest in the stock market. We are definitely in a slowdown (I refuse to believe we will have a recession), so the stock market is not going to do well for several more years.
4. Invest in gold and silver. They have already made their run; it is doubtful they will do much better. Gold and silver are used as a hedge against inflation and a weak dollar. It looks like oil prices are headed down and the dollar is strengthening.
5. Invest in real estate. Those who invest in real estate almost always do well. The following graph shows how the top one percent in income have acquired their wealth. As you can see, the vast majority have invested in real estate.
Don't Think Short-Term
Real estate is not designed to be considered short-term. Right now, real estate is going down in value in many cities, but it is going up in many others. It is a terrible time to sell and pull out any equity. Only about five percent of the properties are for sale. Most homeowners and investors are simply holding on to their real estate and are waiting for the next upward appreciation cycle.
The Four Greatest MISTAKES People Make in Real Estate
Real estate always does well when purchased correctly. It is people's choices and sometimes greed that mess up an almost perfect investment.
MISTAKE #1. Purchasing Property That is More Than One Can Afford
Often individuals are attracted to and purchase a home they cannot afford. They struggle their entire lives just to make the payments. Then if they have an illness, job loss, or divorce, they are in big trouble.
MISTAKE #2. Buying Properties That Don't have Cash Flow
When rental properties are going up rapidly, everything seems desirable and people purchase rental properties that don't cash flow. Often that can lead to disaster with large, negative cash flows when the market softens. Properties that cash flow are a no-brainer. They are great no matter what happens. These are the ones you want to buy and hold. Eventually they will be paid off.
MISTAKE #3. Refying Too Much Out
When prices are going up, one is tempted to take out the maximum amount allowed on an equity line on one,s home or do a cash-out refi on a rental property. That is dangerous if one cannot make the payments or support the negative. It is like abusing one's credit cards, which often ends in bankruptcy. It is especially discouraging when values drop below the loan amount, as is happening with many homeowners right now. One should not get discouraged, they will eventually return to their original value and then surpass that, usually within 2½ to 4 years.
MISTAKE #4. Getting the Wrong Loans
We have all seen the problems with sub prime loans. Those with low incomes were not the only parties using these loans. Some bought million-dollar homes in a gamble that they would up in value. Five-year Option ARMS also became popular, but they caused major problems to the investor when they reset. Loans like these should be refinanced as soon as possible. The same is true for adjustable-rate mortgages. Fixed-rate loans are the only suitable loan type for anyone who plans to hold on to his properties.
Conclusion
It is never fun to be in a down cycle and see the equity in your home and rental property slip away. However, do not be discouraged, this is just part of the cycle of real estate.These down cycles are always good times to pick up more property at great prices, but be sure you keep a reserve for unforeseen problems (such as illness or job loss) so you can still make your payments. Make sure you purchase good properties in good locations, priced below the median price for the area, in markets that have good job growth.Properties will return to their 7-plus percent appreciation and then you can watch your wealth build once again. So, don't worry. Real Estate is still the best long-term investment.
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