Is there money to be made in Real Estate Today?

For nearly 20 years I have been investing in Real Estate.  If you own a home, you too are an investor in my mind.  I have read just about every "get rich in real estate" book out there.  They really all say the same thing, but once in a blue moon something new comes off the pages.

Since most of my friends don't like to read, they are always asking me for the highlights of different books when they see the bookshelves in my office.  I don't mind sharing because the highlights won't get them the understanding they need.  As Malcolm Forbes famously said "With all thy getting - get understanding."

Just a few months ago, my wife finished her real estate license, and entered the field as a Realtor.  I of course handle all of her online marketing thought my SEO and online marketing company, the Bourquin Group.

People give us all kinds of peculiar looks when they find out we are moving head first in todays Real Estate market.  We are both amazed at how many people say something like "I was an agent but after the crash I quit and let my license expire."

The next question out of their mouths is "Do you think there is money to be made in Real Estate today?"  Now I really wonder how I should answer that question.  Should I say "No of course not, we are just plain stupid."?

So as Mr Forbes said, it is clearly time for them to get understanding.  Most people measure a market incorrectly in my opinion.  They look at how fast they can buy something and "flip" it for a profit.  Short term gains like that are simply gambling.  No real value is added to the market so it will eventually cost somebody some money.

The real answer to the question "Is there money to be made in Real Estate today?" is the same as always, "Yes".  Every market will dictate what method you need to use in order to make money in a market.  What most people want to know is "How do I make a quick buck in Real Estate today?".  That I can't answer.

What I can tell you is that if you are an investor or just starting out, now is the time to buy.  Nobody will know the exact bottom of the market, but Dean Graziosi uses "Days on Market" as a key trend indicator.  I would like to add "year over year inventory".  Both numbers are starting to shrink.

Banks still hold the wold card with unreported foreclosures.  Those are foreclosures where people still live in the house, and haven't made a payment in years.  The banks are just waiting to protect their investments .  Empty houses attract problems.  Letting people live there rent free is an interesting approach, but they are doing it.

Given all of the key indicators, we are nearing the bottom or possibly past the bottom of the market.  My bet is that in real dollars we are past the bottom.  Inflation alone will hold house prices right where they are.  In adjusted dollars, there may be one to three more years of price erosion.  That means that while everything else will go up in price, home prices might be flat.

So I can hear you asking "If home prices stay flat, how can there be money in Real Estate?"

The answer is simple.  I don't think real estate should ever be used for gambling unless you have a lot of cash to risk.  In the long run, Real Estate will always go up.  If inflation drives up wages and the price of lumber, building a new house will cost more, and that adds price pressure to existing homes.

History says, Real Estate always goes up.  More specifically with a couple of exemptions, any given piece of land will always go up in value over the long run.  Stocks that is not true.  Any company can go bankrupt.  Look at the names littering the grounds outside of Wall Street like American Airlines and Enron, in fact 87% of the Fortune 500 in 1987 aren't there any more.

Now the one Caveat to Real Estate.  Government intervention and Environmental Hazards, which usually result from Government intervention.

The city of Detroit is a stellar example of the freebie program gone silly.  hundreds of millions of dollars line the pockets of corrupt politicians and there are city blocks that are totally worthless because the government is attempting to control those areas.

Rent Control.  Another great social experiment to give more to those who haven't earned it at the expense of the those who worked for it.

Sometimes even environmental problems are caused by government intervention.  California made MTBE mandatory in gasoline to save the environment and reduce smog.  That was until the MTBE leaked out into the ground all over the state.  The gas station owners lost everything and the bureaucrats kept their jobs.  If the gas stations added MTBE on their own, the owners would all be in jail.

So as an investor, it is in your interest to limit the governments involvement to the bigger picture like zoning and safety.

Where does that leave us today?  There are two methods I am encouraging everyone to use to make money in real estate today.  The first is the method I call the path to retiring on the beach.  It is a simple method and will be expanded in my next book.

The short course to the "Path to retiring on the beach" is this.  Step one, buy a house that you can afford now, no matter if the price goes up or down.  Step 2, save money so that in 5 years you can buy another house.  Step 3. Buy another house and rent out the first house.  Step four, repeat at step 2 for 20 years.  At 20 years, the first house is paid off, and if inflation is normal, it is making the payments for the 5th house, your retirement home on the beach.  Every 5 years as each subsequent house is paid off, you get a pay raise in rents.

The second method is for people with great credit and already own a home. Go to step 2 and start there.

You can hope that your retirement is there in 20 years, or you can buy a house today and have four money makers when you retire.  The best part is, if you really dig and find good deals, you might not have to wait 5 years.

I used a VA loan, to get my first house.  Two years later I bought an FHA and rented out the house with the VA loan.  I bought a VA repo as my third home.  I paid about $5,000 more than it was worth but the VA interest rates and low down payments for investors made it worth the extra risk.

As home prices went up, I refinanced the VA loan to a 15 year so that I was still making $125 a month in positive cash flow and then used the VA loan again to buy a third house.  T

Even if you don't have VA benefits, FHA loans can do the same thing. You just need to pay PMI which means you keep more cash up front and pay a little more over time.

So is there money in Real Estate, the answer as always is "Yes", as long as you don't gamble and can keep the government from trying to "help" you or your neighbors.

The clouds are clearing up, so time to go to the beach.  Would you like to join me?