Zero down homes are something of a mystery to most people, even most Real Estate Agents. So you are probably asking, "Are they real?".
The answer is YES. Homes can be bought with zero down several ways. The easiest is a VA loan. VA loans are available to just about anyone who ever served in the US military and was honorably discharged. Here in California there is an obscure little program called Cal-Vet that can help too.
These days, less than 2.5% of Americans are serving in the US military. So how does 97.5% of the country get a home with zero down?
There are a couple of ways, one is the Homepath program. Zero down homes in the Homepath program are rare and will require some digging and patience on your part.
Another option is the way all property used to be sold, owner or seller financing. The seller of the house gives you a loan to cover the down payment. These are tougher to do and require some legwork by your Real Estate Agent and loan broker.
Now that home values are starting to creep back up, you have a chance to find a home where the owner might just have enough equity to "carry paper" and get you into that house with little or no money down.
If you aren't sure, always make the offer, the only think that can happen is they say "no", or they say "yes".
Showing posts with label buy a home. Show all posts
Showing posts with label buy a home. Show all posts
Monday, March 3, 2014
Saturday, October 26, 2013
Is Now The Right Time To Buy Your First House?
There is always a lot of controversy when the discussion of buy or rent starts. So lets start with a little perspective. Only half of all the homes in the US are occupied by their owners. About 5% are vacation homes, so 45% of the homes are rented. Who do you ask to get a straight answer? The guy you are renting from? Your friends that rent? The neighbors that own? If you did a poll, it makes sense the renters and landlords would say rent.
This is where I would say two things, 1. "Be careful who you listen to" and 2. "Follow the money".
The Investors Secret
Investors wouldn't rent the property to you if it didn't make them money. When you follow the money, you realize that you need to be careful who you listen too.
So Rent or Buy?
The answer is a personal choice like no other, and I want to share something with you about how my decision made a difference in my life. When I was a kid in the 1970's, I was amazed that my parents didn't buy more houses to rent out and make money. 14% increases in prices annually, and peak interest rates of 18%, it just made sense. My parents told me I was young and that real estate was a bad investment. I listened.
At 18 years old I was in the military, and rented a small apartment, and rented out a room so I could live in a slightly nicer place and drive a nicer car. One of the guys I worked with was driving an old crappy VW beetle. I was driving a new VW Rabbit Diesel with payments. Another friend in college bought a two bedroom condo, rented out a room and drove a 70's Maverick.
In 1989, the real estate itch was getting stronger, so I started taking real estate classes at Century 21. I learned here that a lot of agents don't own a house. I figured my parents must be right if agents don't even buy homes. It seemed odd though, can you imagine a car salesman without a car? A TV salesman without a TV? A cell phone salesman without a cell phone? It was looking more and more that my parents might just be right, and that houses were different.
I kept renting until 1998, when I couldn't resist any more and jumped in head first. Instead of starting with a condo like my friend or a small house, I bought the biggest house I could afford. Even then I was right at the limit to the penny for getting the loan. When I bought that first home, my buddy with the VW beetle had just "retired" and pulled up in his new Ferrari to congratulate me. My buddy that bought the condo also retired. We were only 28 years old, and I was late to the party.
Better Late Than Never
The guy in the VW, Bob, had a small business on the side painting houses. He was always saying you have to own a business to succeed. The painting business gave him connections to buy commercial buildings at good prices that needed work. It wasn't a full time job and a painting business on the side that let him retire, it was the commercial real estate he bought at good prices.
The guy in the condo, Dan, kept buying units in the same complex. In 1998 he owned 14, in 2004, he owned all 40 units in the complex and sold the entire place as a high end apartment building. He flipped the money into a great home for himself and another dozen homes that he used for rentals and income.
So why did Bob show up to congratulate me? He wasn't there because I bought my first house, he was there because I bought it right, I bought it like an investor. There are some things that investors and agents don't want you to know, and I because I knew Bob and Dan I used these "secrets" to get a great deal. I bought the model home in a new high end tract for 30% less than anyone else in the neighborhood paid. I had an instant 25% equity after paying all of the fees. On paper, I had just made more money in one transaction than I had made in any one year.
So, do I think you should buy your first house now? Absolutely, and here is one thing that I wish I had known when I was 18.
When you rent, you are buying the landlord a house. If the landlord had a 30 year loan, and every tenant moved out every two years, he only had to deal with 15 tenants and he owns a house. Then when he rents it out and he has free money. Warren Buffet calls this infinite returns. Someone else bought the investor the house, and he keeps making money forever. In fact it is better than free because you get business tax deductions if you are an "active investor"*. Why wouldn't you do this?
If you buy a house, you might have a bigger payment for the first few years, until rents catch up, but here is the part I didn't get early enough. If you rent a house for $2000 per month, that is $2000 you have to make after taxes. If you buy a house at 3% interest and pay $2500 per month, $1250 is interest that is tax deductible. That means half of your payment is reducing your tax bill in many cases. At the end of the year, they might end up costing you the same amount.
A small part of your payment is for insurance, and the rest is principle. Principle is like a savings account. Even if your house doesn't go up in value, about $1000 per month is paying down the loan. If you stay in your house just 24 months and you sell it for the same price as you paid, even after paying all the fees, you get a check.
When was the last time your landlord gave you a bigger check than you gave him? So lets take a simple example, a $200,000 house, that you buy for $200,000. The 4% interest 30 year loan gives you a payment about $1000 per month including interest and insurance. When you sell, there is $12,000 equity that you can get as a check. How is that for a deposit refund?
What if it goes up just 5% per year? After 12 months it is worth $210,000 and $220,500 after 24 months. Many homes are available for 0% or 3% down, but lets say you put 10% down. You put in $20,000 plus $24,000 in payments for a total of $44,000. Selling the house, you would get back your original $20,000 plus the $20,500 it went up and the $12,000 in principle you put into the house.
Add that up and you are $52,500 on the good side. Take out the 8% for real estate fees and escrow of $17,600 and you get $34,860. So you put in $44,000, and you get back $34,860. Living in a house for two years and it only cost you $9,140. Or you could have paid $24,000 in rent. So which one is the better deal?
What If The Price Of The House Drops?
Historically there have been several "flat" periods where house prices remained relatively level and a couple of short periods where home prices dropped. The key is to do your homework, buy right and make sure you don't buy more than you can afford. Even if you buy at the top of the market, as long as you can afford the payments, you will make it out the other side just fine. If you look at the number of homes that sold at a loss during the most recent price drop, it is actually very small. The media made it look a lot worse than it was.
Buying Smart
In 1998 I bought my first home. Following the slow path to making money in real estate, I moved into a slightly smaller house 24 months later, buying a VA repo for zero down. 24 months later we did it again, and 24 months later we did it again. In 2004 I lost a little faith and sold them all thinking the market had peaked.
After the crash in 2006, not one of the houses I used to own fell back to the price I sold them for in 2004. While the 2006-2007 crash looked bad on paper, for investors who weren't over leveraged it was a windfall. All of the people that were handing their homes back to the banks still needed a place to live, the rental market grew as the housing market crashed.
While I was out of the rental market for a short while, I was never out of the real estate game completely. In 2004 I bought some great rural land with a small home that I fixed up and sold in 2006 for a nice profit. I bought an estate foreclosure in 2006 when the market peaked, and sold it for a nice profit in 2010. I had to stretch my 24 month plan just 24 more months to pocket a tidy profit. The people who panicked sold everything, rented and lost big.
So are you ready to buy your first house? I hope so, and I would like to help you, even if you aren't buying in Orange County Ca where my office is. Let me know what you want to know. I am putting together a book that will include the top ten things your real estate agent doesn't want you to know (or doesn't know) about buying your first home.
What else would you like to know to buy your first house?
* Check with your tax advisor about the tax benefits of buying a home, this article is not meant to provide tax advice.
Thursday, February 21, 2013
Orange County Posts Lowest Inventory of Homes in 3 years
The Orange County Association of Realtors has published a report saying that 2013 has the lowest number of new listings in the last three years. My neighborhood is a perfect example.
When I bought my home two years ago, there was at least one if not two, three or four signs planted in the front yards on every street. This year you have to go several blocks to find a single home for sale. What gives?
There are several things going on. First is uncertainty with the economy. Simply put, people are still hesitant to sell and move up. The average time in a home is increasing. Next the slight rise in home values has slowed the foreclosure and short sale market just a bit. One of the agents in our office is still moving a noticeable number of short sales, but he is putting a lot of miles on his car to do it now.
Loans are also harder to come by as VA and FHA loan limits were reduced. This increased the number of homes requiring a traditional 20% or 30% down payment.
So what does this mean to you? If you are thinking of selling, it means you will likely get a much more reasonable price in a reasonable amount of time this year than you would have since 2006. If you are considering selling, call me and we can talk more about what is happening.
If you are thinking of moving up, now might be the right time. All indications are that home loans won't get much lower interest rates for many years, and locking in your property taxes at the lower values will pay off if you stay in your next home for any amount of time.
If you are trying to buy, you are in a different boat. The "good deals" go very fast. Waterfronts in Huntington Harbor under $2 Million were plentiful two years ago and average days on market was nearly 300. Now, if they aren't a tear down, they sell in days when priced right. I have several buyers who have cash that we can't find a deal for. A couple of homes that I felt were a little overpriced and have been on the market over two years have just gone into escrow. It is a tough time to be a buyer, especially an investor buyer.
Newport Beach, Costa Mesa, Seal Beach, Garden Grove and Fountain Valley are all seeing the same trends as Huntington Beach. This isn't just a waterfront property issue, it is across all of Orange County.
As a Realtor, our jobs are changing yet again. There has been some major changes to the laws, lending and paperwork, creating more work for us. What little we might save on advertising because a property sells quicker is spent advertising to find listings. Agents are all over each other trying to get the next listing.
At the same time buyers agents have to work a lot harder to find a property that fits their clients needs. Gone are the days of 30 or 40 homes fitting the size, price and location a buyer wants. It might take several months now of looking to find even one that fits the buyers wish list. This week one came up that was close for an out of town buyer and before I could get them in the house, the seller had accepted an offer.
If you are thinking of buying or selling a home along the coast in Orange County, please give me a call. If you know someone who is interested in buying or selling a home, please pass on my name and number.
Scott Bourquin
Keller-Williams
www.socalbeachrealtor.com
dre# 0191198
714-594-SELL (7355)
When I bought my home two years ago, there was at least one if not two, three or four signs planted in the front yards on every street. This year you have to go several blocks to find a single home for sale. What gives?
There are several things going on. First is uncertainty with the economy. Simply put, people are still hesitant to sell and move up. The average time in a home is increasing. Next the slight rise in home values has slowed the foreclosure and short sale market just a bit. One of the agents in our office is still moving a noticeable number of short sales, but he is putting a lot of miles on his car to do it now.
Loans are also harder to come by as VA and FHA loan limits were reduced. This increased the number of homes requiring a traditional 20% or 30% down payment.
So what does this mean to you? If you are thinking of selling, it means you will likely get a much more reasonable price in a reasonable amount of time this year than you would have since 2006. If you are considering selling, call me and we can talk more about what is happening.
If you are thinking of moving up, now might be the right time. All indications are that home loans won't get much lower interest rates for many years, and locking in your property taxes at the lower values will pay off if you stay in your next home for any amount of time.
If you are trying to buy, you are in a different boat. The "good deals" go very fast. Waterfronts in Huntington Harbor under $2 Million were plentiful two years ago and average days on market was nearly 300. Now, if they aren't a tear down, they sell in days when priced right. I have several buyers who have cash that we can't find a deal for. A couple of homes that I felt were a little overpriced and have been on the market over two years have just gone into escrow. It is a tough time to be a buyer, especially an investor buyer.
Newport Beach, Costa Mesa, Seal Beach, Garden Grove and Fountain Valley are all seeing the same trends as Huntington Beach. This isn't just a waterfront property issue, it is across all of Orange County.
As a Realtor, our jobs are changing yet again. There has been some major changes to the laws, lending and paperwork, creating more work for us. What little we might save on advertising because a property sells quicker is spent advertising to find listings. Agents are all over each other trying to get the next listing.
At the same time buyers agents have to work a lot harder to find a property that fits their clients needs. Gone are the days of 30 or 40 homes fitting the size, price and location a buyer wants. It might take several months now of looking to find even one that fits the buyers wish list. This week one came up that was close for an out of town buyer and before I could get them in the house, the seller had accepted an offer.
If you are thinking of buying or selling a home along the coast in Orange County, please give me a call. If you know someone who is interested in buying or selling a home, please pass on my name and number.
Scott Bourquin
Keller-Williams
www.socalbeachrealtor.com
dre# 0191198
714-594-SELL (7355)
Tuesday, March 27, 2012
Has Orange County CA Bottomed Out
I have been saying for some time that we are near the bottom in Orange County. Last May I bought a home near the beach at a price that I thought was pretty good. More than once I heard something like "You are nuts, what if prices go lower and interest rates drop?"
My answer then was simply "So What?". I didn't think that prices would drop much further. I could easily stomach a 10% decrease in my home value if that really did happen, and a 4.25% fixed loan was pretty cheap. In the world of retail finance, 4.25% is as close to free as I think you are going to get.
The big banks hold the cards right now, so my crystal ball is filled with a giant logos for the big three banks. Rumor has it that BofA and Wells Fargo are sitting on over 1 Million homes each that are over 120 days late and waiting for foreclosure, in addition to the 1 Million homes they already have foreclosed on or are in the process of foreclosing.
Now those numbers are pretty much conjecture as far as I can tell. Time Magazines Business blog last August said "There are nearly 1.7 Million homes in the U.S. in some state of foreclosure." Which is probably a more realistic number. In the big scheme of things, that number isn't that bad. Another tracking agency I use to find foreclosures for my wife and her investor clients says that in Southern California, the number is 1 out of every 687 homes. Last year it was 1 out of 542 according to the same site.
That means there are fewer foreclosures. Keep in mind there will always be some.
I said it before and I will say it again now. If you can buy, and you live in Southern California, by all means buy everything you feel comfortable that you can afford. If you are thinking about moving up, call my wife, get your home listed and start looking. Inventory is thin. The good deals go in less than two weeks. Great deals in a couple of days.
The difference between a good deal and a great deal isn't $50,000 anymore, it is condition. Any home in really good condition at a fair price doesn't last. If your home is on the market and sitting for more than 30 days without an offer, there are one of two problems. Your agent isn't doing their job, or it is priced too high. The good news is someday the market will catch up to your price again.
For those of you that walked away from your home, I am sorry you did it. A quick economic lesson here. When the U.S. Government prints money, there is a short term boost to the economy of 2-3 years and then inflation follows. In simple terms if there is $100 in the world, and there are two houses, then each house can only be worth $50.00. If the government magically creates $300 and convinces two people to build to more homes at $50 each, there are now four homes and $300 in circulation. When the people figure out what is going on, then instead of building two more home, the existing owners raise the prices. Each house is now worth 1/4 of $300 or $75.
In the last three years, to slow the economy's downward spiral, it is estimated by several sources that the U.S. Government tripled the money supply. The economy hasn't grown much and now inflation is rearing it's head. This is going to be one big inflationary baby. Home prices will follow.
If you are on the verge of losing your home, and it is worth at least 80% of the current market value, Call Your Bank. Work out a deal. They don't want anymore foreclosures, and you don't want the headache of moving. At the very least get an agent and consider a short sale.
Already I have seen several investor newsletters saying the courthouse auctions are getting more competitive and it is time to start getting creative. Investors are now approaching the owners and the banks directly to try and work a deal. These same newsletters are also saying in Southern California "low balling" isn't working because there are other buyers for just about every house.
I am not saying we are back to the craziness of 2006-2008, but I am saying, the banks are tired, the people are tired and the government has pumped up the money supply. This is as close to bottom as I can ever see it getting. That means one thing. Buy if you can, hold if you can't, and if you don't own, now is the time. We all know that rising inflation means rising rents, no matter what the price of houses does.
There is one other variable, but I'll save that for later in the week.
My answer then was simply "So What?". I didn't think that prices would drop much further. I could easily stomach a 10% decrease in my home value if that really did happen, and a 4.25% fixed loan was pretty cheap. In the world of retail finance, 4.25% is as close to free as I think you are going to get.
The big banks hold the cards right now, so my crystal ball is filled with a giant logos for the big three banks. Rumor has it that BofA and Wells Fargo are sitting on over 1 Million homes each that are over 120 days late and waiting for foreclosure, in addition to the 1 Million homes they already have foreclosed on or are in the process of foreclosing.
Now those numbers are pretty much conjecture as far as I can tell. Time Magazines Business blog last August said "There are nearly 1.7 Million homes in the U.S. in some state of foreclosure." Which is probably a more realistic number. In the big scheme of things, that number isn't that bad. Another tracking agency I use to find foreclosures for my wife and her investor clients says that in Southern California, the number is 1 out of every 687 homes. Last year it was 1 out of 542 according to the same site.
That means there are fewer foreclosures. Keep in mind there will always be some.
I said it before and I will say it again now. If you can buy, and you live in Southern California, by all means buy everything you feel comfortable that you can afford. If you are thinking about moving up, call my wife, get your home listed and start looking. Inventory is thin. The good deals go in less than two weeks. Great deals in a couple of days.
The difference between a good deal and a great deal isn't $50,000 anymore, it is condition. Any home in really good condition at a fair price doesn't last. If your home is on the market and sitting for more than 30 days without an offer, there are one of two problems. Your agent isn't doing their job, or it is priced too high. The good news is someday the market will catch up to your price again.
For those of you that walked away from your home, I am sorry you did it. A quick economic lesson here. When the U.S. Government prints money, there is a short term boost to the economy of 2-3 years and then inflation follows. In simple terms if there is $100 in the world, and there are two houses, then each house can only be worth $50.00. If the government magically creates $300 and convinces two people to build to more homes at $50 each, there are now four homes and $300 in circulation. When the people figure out what is going on, then instead of building two more home, the existing owners raise the prices. Each house is now worth 1/4 of $300 or $75.
In the last three years, to slow the economy's downward spiral, it is estimated by several sources that the U.S. Government tripled the money supply. The economy hasn't grown much and now inflation is rearing it's head. This is going to be one big inflationary baby. Home prices will follow.
If you are on the verge of losing your home, and it is worth at least 80% of the current market value, Call Your Bank. Work out a deal. They don't want anymore foreclosures, and you don't want the headache of moving. At the very least get an agent and consider a short sale.
Already I have seen several investor newsletters saying the courthouse auctions are getting more competitive and it is time to start getting creative. Investors are now approaching the owners and the banks directly to try and work a deal. These same newsletters are also saying in Southern California "low balling" isn't working because there are other buyers for just about every house.
I am not saying we are back to the craziness of 2006-2008, but I am saying, the banks are tired, the people are tired and the government has pumped up the money supply. This is as close to bottom as I can ever see it getting. That means one thing. Buy if you can, hold if you can't, and if you don't own, now is the time. We all know that rising inflation means rising rents, no matter what the price of houses does.
There is one other variable, but I'll save that for later in the week.
Friday, March 16, 2012
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?
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?
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