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As the doom and gloom grows, people who already own income properties suddenly start to panic and fear the worst. Hopefully if you got into real estate investing, it wasn’t on a dare or because you were following a fad. Specifically, you became fully educated on the topic and understand that there are MANY ways to make money in real estate. I am not simply referring to the many ways that you can invest in real estate, but even if your sole focus is income properties, then there are many ways to benefit from your investment.
Some people think the only way to make money is from the appreciation of your property.
Flipping became very popular just a few years ago. However, the key to building wealth in real estate is through buying and holding. It is not a get rich quick scheme, and the wealthiest investors I know have a motto – they will never sell a property. They continually leverage the equity in each property (as that equity increases) to finance the next property. When they retire they live off of the income from their portfolio of properties. Ultimately, their intent is to leave the entire portfolio to their family when they die. But they will never sell an income property. There are just too many benefits of owning them (properties).
When you rent your property, the tenant indirectly creates wealth for you by paying your mortgage, insurance, taxes and monthly fees through their rental payment to you. In addition, you have an asset that is (or can be) leveraged by a fraction of it’s value. If you buy mutual funds or stocks, and you invest $10,000 today, in return you will receive $10,000 worth of shares. However, if you purchase a property with a mortgage, and only want to use that same $10,000, based on 10% down, you can buy a $100,000.00 property. As your tenant is paying down your mortgage, that tenant is effectively paying for the other $90,000 for you over time (back to the bank). Plus … if a stock increases by 5%, you gain 5% of the $10,000.00. But if your property appreciates by 5%, you gain 5% of the $100,000.00.
The authors of Investing In Real Estate, Andrew McLean and Gary Eldred (2006, John Wiley & Sons Inc.), have offered many ways to grow your wealth in investment real estate. Nobody can predict short-term price increases -- but that's why the savvy investor doesn't look to just appreciation to make money. Here's how you can build wealth through your real estate investing:
1. Positive cash flow. This is simply what it sounds like -- the rent covers the mortgage, taxes, insurance, fees, etc., and once all that's paid, you have money left over at the end of the month. A wise investor will also have enough money in reserves to cover all these expenses for a few months in case the property goes vacant.
2. Equity growth via amortization. As the mortgage shrinks from the mortgage payments, your equity grows (and so does your net worth). This is one of the most powerful means of wealth growth -- using OPM (other people's money) to build your net worth. The tenant is providing the investor with hundreds or thousands of dollars per month to pay off debt, which turns into equity for the landlord.
3. Capital improvement. This is the fixer-upper that most people think about when investing in real estate. Purchase a property for $50,000, put in another $25,000, and voila, the house is now worth $125,000 ($50,000 more than the initial investment).
4. Wholesale purchases. The most effective way to build net worth and equity is to buy a house for a bargain price. These properties would be the pre-foreclosure, foreclosure, tax sales, etc., where the investor buys the property well below market price. In essence, you make your money when you buy the house at such a low rate.
5. Lowering tax bills. One of the greatest benefits about real estate investing is all the tax breaks allowed for these type investments. Uncle Sam allows many tax deductions, tax credits and other government-sponsored programs connected with real estate investing that cut the investor's tax bill, thus, increasing the bottom line and equity growth.
6. Smart asset management. Many novice or ignorant real estate investors lose money simply by not managing the asset wisely. For instance, painting properties before the wood is actually peeking through will keep the asset in good shape, seal the wood, and protect it from more expensive damage. Managing the asset is just as important as buying smart and cash flow. The real estate investment is a commodity, not a money machine, and must be managed and protected to maintain future wealth growing potential. A
7. Asset value growth. As your property increases in value, so does your wealth. This is the old fashioned principle of buy and wait. Buy at today's prices and with time, your asset will grow in value because of local appreciation. In addition, your equity will grow along with the amortization principle mentioned above.
8. Rent appreciation. As the cost of living increases, so, too, should your rent cash flow. Increasing your rental income per month by 5 percent could result in hundreds of dollars of cash flow per year -- year after year.
Tuesday, December 9, 2008
Monday, December 8, 2008
Is Real Estate Investing Your Best Opportunity?
Real estate has made a lot of people very wealthy over many generations. Granted, we are now seeing price falls like never before (for some). Some start to question if they should still invest in real estate.
Consider that 91% of homeowners surveyed by real-estate-services firm Realogy Corp. thought that owning a home was the best long-term investment they could make, according to the Wall Street Journal. That is what the homeowners think – but what about the experts?
According to this article (I read) , most experts expect housing prices to level out over the next few years, and then regain a more historically balanced appreciation rate of between 2%-4% per year. The tone of the article—seems to imply that real estate is not really a good investment anymore. Do you think perhaps the growth that was experienced in the past decade was not only unparalleled, but unsustainable as well? Therefore, as ROI (returns on investment) come back to realistic levels, we suddenly interpret them as “not worth it”.
I think that they left out some important facts to consider. In the article Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley, advises that people should think of their own homes mainly as places to live, not as investments. In fact many experts will tell you that the house you live in is not an investment nearly as much as it is just a roof over your head.
Throughout the article the author evaluates the merit of real estate investment assuming solely that the “investment” is a person’s primary residence. Yet, when he interviews investors that talk fondly of real estate, they talk not about their primary residences, but about rental homes they own. There is a huge difference. Primary residences might not be your best investment. Rental housing however, can be an incredible investment if managed properly.
No one can predict which way prices will go, but true investors do not rely on appreciation estimates when evaluating the worth of an investment opportunity. Investors look instead at the cash flow numbers. Cash flow is something tangible, and can be budgeted for in the present and future.
Furthermore, the market drops are generally based on personal residences, not income properties. Properties that provide good cash-flow typically do not drop in price as much during market fluctuations. Dramatic price drops happen when people sell in desperation. They are forced to get out of their mortgage or other debt, so they drop the price until it sells. What motivation does an investor have to drop the price on their rental house if it is bringing in money every month? The answer is that they have very little motivation to do so, and so they probably won’t.
Investors can still make great money in the real estate market if they focus on the right things.
Consider that 91% of homeowners surveyed by real-estate-services firm Realogy Corp. thought that owning a home was the best long-term investment they could make, according to the Wall Street Journal. That is what the homeowners think – but what about the experts?
According to this article (I read) , most experts expect housing prices to level out over the next few years, and then regain a more historically balanced appreciation rate of between 2%-4% per year. The tone of the article—seems to imply that real estate is not really a good investment anymore. Do you think perhaps the growth that was experienced in the past decade was not only unparalleled, but unsustainable as well? Therefore, as ROI (returns on investment) come back to realistic levels, we suddenly interpret them as “not worth it”.
I think that they left out some important facts to consider. In the article Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley, advises that people should think of their own homes mainly as places to live, not as investments. In fact many experts will tell you that the house you live in is not an investment nearly as much as it is just a roof over your head.
Throughout the article the author evaluates the merit of real estate investment assuming solely that the “investment” is a person’s primary residence. Yet, when he interviews investors that talk fondly of real estate, they talk not about their primary residences, but about rental homes they own. There is a huge difference. Primary residences might not be your best investment. Rental housing however, can be an incredible investment if managed properly.
No one can predict which way prices will go, but true investors do not rely on appreciation estimates when evaluating the worth of an investment opportunity. Investors look instead at the cash flow numbers. Cash flow is something tangible, and can be budgeted for in the present and future.
Furthermore, the market drops are generally based on personal residences, not income properties. Properties that provide good cash-flow typically do not drop in price as much during market fluctuations. Dramatic price drops happen when people sell in desperation. They are forced to get out of their mortgage or other debt, so they drop the price until it sells. What motivation does an investor have to drop the price on their rental house if it is bringing in money every month? The answer is that they have very little motivation to do so, and so they probably won’t.
Investors can still make great money in the real estate market if they focus on the right things.
Friday, December 5, 2008
Think Out Of The Box Real Estate Investing
In times where there is so much pessimism and gloom, I thought it appropriate to add a bit of humor. Although the following is a rather humorous joke that crossed my desk today, I find it very indicative of how thinking out of the box can work with real estate investing.
So many people are living in fear these days, tightening their wallets (even if they have a lot of savings put away) and just waiting for the proverbial "go-ahead" to start investing again. In reality, there really are people out there who don't wait for the cash-cow to come to them - rather, they find an alternate way to go grab the cash-cow before someone else does.
If you want some helping in finding these opportunities before someone else does, just send us an email to introduce yourself.
Info@mandmproperties.biz
Dan was a single guy living at home with his father and working in the
family business. When he found out he was going to inherit a fortune when his sickly
father died, he decided he needed a wife with which to share his fortune.
One evening at an investment meeting he spotted the most beautiful
woman he had ever seen. Her natural beauty took his breath away. 'I may look like just an ordinary man,' he said to her, but in just a few years, my father will die, and I'll inherit $20 million.'
Impressed, the woman obtained his business card and three days later, she became his stepmother.
So many people are living in fear these days, tightening their wallets (even if they have a lot of savings put away) and just waiting for the proverbial "go-ahead" to start investing again. In reality, there really are people out there who don't wait for the cash-cow to come to them - rather, they find an alternate way to go grab the cash-cow before someone else does.
If you want some helping in finding these opportunities before someone else does, just send us an email to introduce yourself.
Info@mandmproperties.biz
Monday, December 1, 2008
When The Economy Recovers It Will Be Too Late
I find it rather puzzling that our society has allowed the media to force us to abort one of our natural gifts in life – our ability to use common sense. While I continue to invest in real estate (I doubt if I will ever see a better time to buy in my lifetime), I am constantly meeting people who say they want to invest in real estate, but they are not sure if the time is right.
Is it greed controlling their actions – suggesting they might find an even better deal tomorrow if they wait?
Is it fear controlling their actions – because they constantly hear about the doom and gloom from the media?
The common question I keep getting from potential investors is “do you think the market has bottomed out yet?” These people all know that nobody has a crystal ball. But there are a lot of ways that we can benefit from good old fashioned common sense.
The first thing I notice is that the wealthy people are buying anything and everything they can get their hands on. If they are wealthy then it is very likely they got that way for a reason (excluding people who inherit wealth). We’ve all heard that that the rich get richer, and we are all jealous when times are good and we see wealthy people like Warren Buffet and Donald Trump say that they bought low and sold high. It sounds easy enough. Guess what – NOW IS LOW !!!!!
As I listen to my local news (non-business specific networks) and I talk to common folks, I continually hear them warning us to save every penny, don’t spend too much on Christmas presents, because this whole ‘recession’ is only going to get worse before it gets better. They are selling fear and we as the public are buying. So, we stop spending which only makes things worse and proves them right.
Common sense also tells me that if you want to learn how to do something well, you should seek advice and knowledge from someone who has succeeded in that industry. Anybody can give free advice, but that is usually about all it’s worth.
Yesterday I was listening to Tom Keen on Bloomberg radio (a financial focused network). From that program I heard some very interesting comments that I know you will find interesting as well.
The first quote I had to write down from that program was as follows: “When the economy recovers … it will be too late!” Think about that for a minute. If you are one of those people who is afraid to take action until you see the rest of the “herd” doing the same thing … it will be too late. The deals will already be on the way out, the markets will already be on the way up, and the profits for you are already diminishing. By that time the rich will be laughing all the way to the bank.
Real estate continues to evolve in trends, and trends don’t form overnight. You are not going to wake up one morning in coming months, and see every news program and front page of your newspaper saying: “Finally, yesterday we had no hope but last night everything was fixed and today everything is all better again”. Even if the market goes a little bit lower, it can’t go much lower, and then there is only one way for it to go – when do you want to get in on it?
In fact, another interesting thing I heard on that Bloomberg program was a panel of experts in agreement that the market keeps trying to bottom out. They gave it until the end of this quarter and then predict that the market will stop trying so hard to hit the bottom.
Finally, one of the panelists said “pessimism has peaked”. Admit it – haven’t YOU had enough of this doom and gloom already? People are exhausted from it already. And when they are tired of buying into the doom and gloom that the media are selling, the will ultimately start spending again. And spending is what will turn this whole economy around.
The way I see it, common sense is becoming clearer and clearer, and the next wave of millionaires are being launched today. In real estate investing you don’t make money when you sell …. You make money when you buy! That is where you determine your fate in each deal. So the only reason you might continue to sit in the sidelines, is if you don’t have a lot of cash in the bank to buy real estate. And most people only believe that you can buy real estate by putting down a pile of cash up-front.
Fact – I personally know a lot of millionaire real estate investors who can put down very large piles of cash – but they don’t. They know the various tricks of buying real estate without using piles of your own money.
If you are not clear on how they do this, then don’t worry. That is exactly how we help investors. Whether it is our training or joint-venture partnerships, or whether you turn to us to help you find and analyze a great deal in a market that is already starting to appreciate (yes we have found those), we have the necessary members of our “power team” to help you get started, regardless of your age, income, bank account, or where you live.
If you have questions about how you can get in before it’s too late, just let us know.
Send us an email and we will answer all of your questions.
To your success ….
Is it greed controlling their actions – suggesting they might find an even better deal tomorrow if they wait?
Is it fear controlling their actions – because they constantly hear about the doom and gloom from the media?
The common question I keep getting from potential investors is “do you think the market has bottomed out yet?” These people all know that nobody has a crystal ball. But there are a lot of ways that we can benefit from good old fashioned common sense.
The first thing I notice is that the wealthy people are buying anything and everything they can get their hands on. If they are wealthy then it is very likely they got that way for a reason (excluding people who inherit wealth). We’ve all heard that that the rich get richer, and we are all jealous when times are good and we see wealthy people like Warren Buffet and Donald Trump say that they bought low and sold high. It sounds easy enough. Guess what – NOW IS LOW !!!!!
As I listen to my local news (non-business specific networks) and I talk to common folks, I continually hear them warning us to save every penny, don’t spend too much on Christmas presents, because this whole ‘recession’ is only going to get worse before it gets better. They are selling fear and we as the public are buying. So, we stop spending which only makes things worse and proves them right.
Common sense also tells me that if you want to learn how to do something well, you should seek advice and knowledge from someone who has succeeded in that industry. Anybody can give free advice, but that is usually about all it’s worth.
Yesterday I was listening to Tom Keen on Bloomberg radio (a financial focused network). From that program I heard some very interesting comments that I know you will find interesting as well.
The first quote I had to write down from that program was as follows: “When the economy recovers … it will be too late!” Think about that for a minute. If you are one of those people who is afraid to take action until you see the rest of the “herd” doing the same thing … it will be too late. The deals will already be on the way out, the markets will already be on the way up, and the profits for you are already diminishing. By that time the rich will be laughing all the way to the bank.
Real estate continues to evolve in trends, and trends don’t form overnight. You are not going to wake up one morning in coming months, and see every news program and front page of your newspaper saying: “Finally, yesterday we had no hope but last night everything was fixed and today everything is all better again”. Even if the market goes a little bit lower, it can’t go much lower, and then there is only one way for it to go – when do you want to get in on it?
In fact, another interesting thing I heard on that Bloomberg program was a panel of experts in agreement that the market keeps trying to bottom out. They gave it until the end of this quarter and then predict that the market will stop trying so hard to hit the bottom.
Finally, one of the panelists said “pessimism has peaked”. Admit it – haven’t YOU had enough of this doom and gloom already? People are exhausted from it already. And when they are tired of buying into the doom and gloom that the media are selling, the will ultimately start spending again. And spending is what will turn this whole economy around.
The way I see it, common sense is becoming clearer and clearer, and the next wave of millionaires are being launched today. In real estate investing you don’t make money when you sell …. You make money when you buy! That is where you determine your fate in each deal. So the only reason you might continue to sit in the sidelines, is if you don’t have a lot of cash in the bank to buy real estate. And most people only believe that you can buy real estate by putting down a pile of cash up-front.
Fact – I personally know a lot of millionaire real estate investors who can put down very large piles of cash – but they don’t. They know the various tricks of buying real estate without using piles of your own money.
If you are not clear on how they do this, then don’t worry. That is exactly how we help investors. Whether it is our training or joint-venture partnerships, or whether you turn to us to help you find and analyze a great deal in a market that is already starting to appreciate (yes we have found those), we have the necessary members of our “power team” to help you get started, regardless of your age, income, bank account, or where you live.
If you have questions about how you can get in before it’s too late, just let us know.
Send us an email and we will answer all of your questions.
To your success ….
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