Is Real Estate the Winning Ticket?

InvestorDirector.com

Why real estate will continue to work for investors and homeowners in today’s market

Non real estate based fortunes are rare

It is very easy to divide affluent people into distinct vocational categories. There are only a dozen or so ways to become a financial powerhouse outside of real estate and nearly every way involves a strange turn of events taking place, a unique upbringing, highly specialized knowledge, rare genetics, or in some cases, luck. Look at the following list and see if you fit the mold of someone in any one of the following vocations:

• Pro athlete/Entertainer
• Big business owner
• Author/Information Marketer
• E-commerce business owner
• Stock Market Investor/Venture Capitalist/Hedge Fund Manager
• Drug Dealer/Organized Crime Boss/Criminal
• Mid-size state or regional level business owner (Grocery store chain etc.)
• Highly paid employee (CEO/COO/CFO), consultant for a massive corporation
• Elected government official
• Specialist such as a Doctor or Lawyer
• Inventor
• Heir or Heiress to a fortune

By looking at the various categories of highly affluent individuals who make their personal fortunes outside of real estate, you can easily see that the odds aren’t in your favor to reach your desired levels of income in any other way besides real estate. The task is much more difficult for you to become a wealthy sports hero or the next CEO of Ford Motor Company versus making a fortune in real estate. There isn’t that much room in the world for you to take on positions like these. They are reserved for the very gifted or those who have specialized knowledge and know the right people. Becoming wealthy outside of real estate boils down to genetics, who you know, possessing specialized knowledge from years of study at universities, or starting a sports activity before you’re potty trained.

The rich make much of their wealth in real estate, or they hold much of their wealth in real estate.

Since your design in life follows a much different path in comparison to the various categories of wealthy people on the previous list, you may need to take an alternate road to achieving wealth: real estate. The one thing you have in common with all wealthy people is the ability to buy, rent, refinance and sell real estate.   

When Ford Motor Company announced in the 2nd quarter of 2007 that they were going to refinance $18 billion out of Ford owned land and property to reinvest in building the company up again to compete with foreign automakers, many of us learned how powerful real estate investments really are. Without this refinance plan, Ford Motor Company would have been doomed. The lesson here is that Henry Ford made his wealth as an innovator, not as a real estate investor. The Ford group bought land and property as their business was growing which saved them from financial ruin in 2007. Look where they are today.

What the Fords did is not uncommon in the business world. Insurance providers, hedge funds, franchise restaurants and regional firms are just a few examples of business entities that also hold much of their wealth in real estate; owning large office buildings, land, storefronts and apartment buildings. It’s these investments that provide backup wealth should the main business crumble.

Real estate facilitates multiple income streams

There are many different ways to make money in real estate. Anyone can find a niche in real estate and create a profitable business. You don’t have to be an investor in real estate to make a fortune. Look at the following list to see some potential ways of realizing your real estate fortune:

Real Estate Investment Techniques:

• Buy and hold – Buy property to rent long term or sell through a rent to own system.
• Rehab Flip/Rehab Hold – Buy ugly houses, rehab and sell them; or refinance and hold.
• Wholesale Flip – Buy a house, mark up the price of it and sell it “as is” to other investors that will perform the rehab and make their own profits by holding or selling.
• Retail Flip – Same technique as a wholesale flip except selling at fullmarket price – usually to the person that will be living in the house.
• New home building – Buy land, select a builder who will build a home (or homes) and sell for profit.
• MDM – Be a “Million Dollar Middleman” and connect hungry buyers with sellers offering discounted property for a fee you set.
• Commercial buying and selling – Apartment buildings, trailer parks, raw land, office buildings, large developments like malls/amusement parks etc.
• REIT ownership – Start a private or public pool of money (usually in the millions) that buys, holds and sells real estate.

Non-Investment Real Estate Based Businesses:

• Appraisal service
• Real estate agent or broker
• Mortgage brokering service
• Title company
• Credit repair company
• Construction/home improvement company (interior design, kitchens and bath renovations, drywall installation, painting, deck/swimming pool builder, landscaping, general mason, plumbing service, demolition, security, electrical service, window installation, vinyl siding installation, roofing etc.)
• Private/Hard money or short term lender
• Venture Capitalist
• Web designer
• Information marketing (author, REA group leader/owner, consultant or motivational speaker)
• Consultant/Business coach
• Visual advertising supplier (brochures/flyers/business cards/signs etc.)
• Dumpster/demolition product removal service
• Property management
• Accountant
• Attorney
• Insurance agent/broker
• Staffing provider (construction crew members, painters, drywall specialists etc.)
• Short sale specialist – expert in negotiating with banks on behalf of a homeowner for a quick sale for less than homeowner owes their lender. Usually occurs in foreclosure situations.

You can make money in all market conditions

Currently, America is going through a revolutionary period in real estate. So many homeowners are in foreclosure because they made bad decisions and were encouraged to do so by rapacious banks. Many investors are no longer buying because they are scared. These investors have been misinformed. The wealthiest and savviest investors are not running scared but rather embracing this painful economic period. Right now is the time to get in the real estate market, not get out. Sure, good markets can make real estate millionaires, but bad markets like today’s real estate market can also create millionaires out of those who are making wise purchases and managing those purchases until times get better. Real estate cannot be this bad forever. When things “pop” again, we will see a generation of millionaires created in the blink of an eye because they had the right information – and decided to act on it when times were poor.

Real estate always has value

You can’t create more land; therefore real estate has value and it will always have value. Its value may fluctuate over time, but real estate always has value – and anything of value has profits to be reaped no matter if the value is trending up or down. Real estate is a need, but it is also want as well. People love houses. When you have what people need and want, you will always hold the purse strings for your personal fortune.

You can predict the value of real estate.

In real estate, values are easily predictable. Values of stocks and other investments – both future and current, are hardly predictable at all. There are too many outside factors that affect the value of non-real estate investments. You always know at any given time what a piece of real estate is worth based on a simple appraisal. The appraised value of a house is usually based on the price of 3–6 similar houses that have sold within 3-6 months and usually within 1/2 of a mile in the area your investment is located in. These are called comparables, or “comps”. Perhaps the most important person in someone’s real estate network is their appraiser. An appraiser has special computer programs and databases that allow him or her to accurately predict the current value of a piece of real estate. An appraiser can also predict what future values of a property will be like based on hypothetical improvements made to the property and current market conditions. Experienced real estate investors can predict a property’s “ballpark” value just by knowing the area a property is in. They can create a totally new value in a few days to several weeks with some modifications to the property, while employing specific marketing techniques to create purchase demand which will quickly sell that property.

Low risk

Real estate values are generally stable, predictable and much less volatile than other investment vehicles. Risk always decreases as your knowledge, the size of your network, and your experience grow. People seem to think that you have to take huge risks on an investment to have a shot at huge returns on that investment. This is generally true in other investments but not so true in real estate. It is also generally true that less volatile/low risk investments usually offer very low rates of return. Once again, real estate is the exception where you will always seem to find stable, predictable values and the ability to force appreciation through various property upgrades. If real estate wasn’t safe then why do banks want to lend money for purchasing it? Do banks lend on stock purchases or mutual fund investments? I think not.

Real estate is a secured asset class; many other investments are not secured assets. Banks would never lend money on something that didn’t have the value to support it or value predictability such as in real estate. Banks don’t trust stock markets, IPO stock offerings, individual stocks, 401k’s, IRA’s, mutual funds or annuities. Banks prefer to lend money for real estate because it always has value based on a never-ending need for it.

Infinite gains are possible

Investors refer to the money they make on any investment as a Return on Investment (ROI). The ROI is usually calculated as a percentage of the money you put into an investment versus the profit you made on that money over a one year period. For instance, if you put up $100 of your own money and got $150 back at the end of one year, your ROI would be 50%. You made a dividend of ½ or 50% of your initial investment dollars over 1 year. In most investments, you have to put up your own money. That’s very risky as you could lose all of yourmoney. But in real estate, you don’t have to risk your own money and pray for a return on investment. In real estate, you usually borrow other people’s money for a particular investment and still realize a nice return. If you don’t put any money into an investment and that investment makes you a dividend, your ROI is infinity; you put up nothing and got something.

In real estate, you make money four ways at once

When you own other investment vehicles, you generally make money when those particular assets increase in value. Remember that you are using your own money and trusting others to hopefully generate a return on investment for you. It’s all out of your control. In real estate, you are not only making money four ways at once, but it’s usually not your money that’s being used to make your ROI. With a typical real estate investment you make equity when you buy (obviously you’re not going to pay full price for a property). Remember that equity can be converted to cold hard cash by selling or refinancing. Over time, that equity grows, as does the property’s value in the form of appreciation. Don’t be discouraged that properties are temporarily depreciating in most areas right now and in the coming years. Once prices adjust, they will appreciate again and make you money. Houses have never gone down in value when you look at the big picture over decades of time. Remember too that you can force a home’s appreciation by making improvements to that home after a wise purchase.

As you hold your property, your tenant is paying rent on your property; thus developing more equity for you to harvest in the form of cash by refinancing or selling. If you bought smart or have a small loan balance, your tenant will be providing a monthly cash flow to you. By owning property and providing rental units for people, you can reap excellent tax deductions. Property owners make a lot of money by saving money that they would normally have to pay in the form of tax if they weren’t property owners. Real estate investing and making money four ways at once is smart investing no matter what market you’re in.

Your customers are already in place

In the last two years, banks have reclaimed more homes than ever before from people that couldn’t afford to make their payments or had a set of circumstances that caused them to lose their homes. One thing is for sure: everyone who loses their home still needs a place to live. Because these people need housing but do not have the credit anymore to get a bank loan on a home, they will become tenants. Remember that tenants are your customers who will make the payments on the ultra low priced houses that you buy. This provides you with cash flow and allows you to buy more houses. Right now is the time to buy in many areas because prices simply can’t go any lower. This means these homes can only go up in value as time passes. By purchasing low priced homes and making these homes available to the massive population of tenants, you will be keeping your assets paid off while the market heals. You’re positioning yourself for appreciation that will come back in time. Tenants are essentially buying you time. And time is what’s needed for real estate to start appreciating again.

Employees are already in place

In businesses besides real estate, owners have to go through several costly and time consuming steps to make sure their business runs smoothly. The non real estate based business owner is liable for the well being of their employees, requiring them to carry expensive comprehensive insurance plans to protect their interests in case of an injury lawsuit. The business owner is also at the employee’s disposal. An employee can quit whenever they want, steal, or perform poorly – all on the business owner’s dime. The process of firing an individual is every bit as tedious and risky as hiring and providing employment. This can make anyone think twice before jumping in to the world of business ownership, wouldn’t you?

Enter real estate. In every real estate transaction, your service providers (“employees”) are already in place.There is rarely direct hiring or firing of employees in real estate. The liability of having personnel is gone because you use other businesses that have their own employees to assist in your day to day operations. Typical real estate transactions call for 5-10 service providers, all of whom represent other businesses that revolve around your needs, not theirs. In real estate, your team is already in place and ready to serve; you just have to find each teammate by networking and talking to other investors and service providers. Because these service providers are not your direct employees, your financial and legal burdens are greatly reduced. What’s more, is that nearly everyone you use for your transactions has a license to be in business and is paid strictly on commission: they have to perform for you or they don’t get paid!