Prosper Newsletter: February 2008 > Real Estate
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
How do I invest when money is scarce?
Some people underestimate what's possible in real estate. They hear the brouhaha over the credit crunch or the mortgage crisis and the chatter about the consequent downturns. Is this enough to keep good investors out of real estate?
It shouldn't be, and the truly good investors will probably be the ones to jump in and take advantage of all the financial opportunities. During boom and bust periods, it is the dedicated few that find ways to invest without being burned. The dedicated stick to the basics and protect themselves against problems in the market. For example, even in the event of a financial crisis, you don't have to have a lot of money for a down payment on a home. There are several strategies you can use to work around this problem. While the 30-year fixed mortgage is still a favorite, there are ways to lock in a rate by doing a 90/10, a 80/10/10, a 95/5, or a 97/3. Creative financing revolutionized home ownership in the past decade. So if you find yourself strapped for money, learn to think outside the box. Some developers will carry some of the financing, or some real estate agents will carry a note on their commission.
Moreover, there are ways to escape overpriced urban real estate. For example, your starter home might be in the middle of nowhere, and the neighborhood may not be ideal, but the house is affordable. It might be twenty minutes farther out than you had hoped to be. It might be a smaller floor plan than you would like, and it may need a lot of work. The lesson in this situation is that you can use this kind of opportunity to get in the game. You won't be in that home forever. You might own it forever, but chances are you will have the means to move and rent it out.
Anyone can become rich through home ownership or investing. And it's not nearly as hard as most people imagine. The fact is, there are basic strategies that don't require you to have a lot of money or to turn your life upside down. For example, homeowners obtain buying leverage by borrowing the bank's money. Homeowners also get tax breaks, while renters pay through the nose. Homeowners also earn tax-free profits when they sell their primary residence that they've lived in for at least two of the last five years (up to $500,000)!
Because the U.S. population is growing faster than predicted, people will always need housing. Even if your real estate investments don't yield the fantasy profits that many speculators in hot markets have seen, you still have a place to live.
With that in mind, the key is to go back to the basics. Start by opening a home-savings account. Deposit money into that account on a regular basis. Then, when you have a comfortable down payment, you can purchase the home you desire. Commit a percentage of your paycheck that you can afford and stick to it. Remember, you don't have to be rich to buy a home. You just have to want to be rich. The basics will help you get there.
Student Gets a Great Deal, Despite Pressure from Her Realtor
After looking at several houses over a period of a couple of months, I finally found the property that I knew was the one I was looking for. It was a nice home from the 1950's that had been on the market for almost a year. The seller was asking $127K, but it needed a lot of upgrades. I was also told that the sellers were highly motivated, which was what my coach had told me to look for when looking for a deal. The first offer I made was for $100K. My Realtor, and everyone in her office, kept saying that the offer was too low. They told me the seller wouldn't even consider the offer and that I needed to make it higher or I was going to lose the deal. I said NO. This was my offer and they needed to present it. Despite much protest, they presented it and the seller came back with a counter offer of $107K ($20K less than the asking price). I countered with a final offer of $104K, and they accepted. My real estate agent was amazed. They just couldn't believe that my offer had been accepted that low. I've spent approximately $10-12K to replace the shingles on the roof; additionally, I replaced the furnace, replaced the windows, painted all the rooms, pulled carpets to expose the beautiful hardwood floors, re-carpeted the basement, and enclosed the laundry room. Right now I'm in the midst of closing a lease-to-buy deal on the house with a couple who have agreed to $135K for the home. I am also working on developing 3 lots I have owned for quite some time in Challis, ID. I couldn't have done any of this without the knowledge that I got from Prosper Learning and my coach.
Thank you so much.
Janelle P.
Real Estate Basics
Most (if not all) investors, at some point in their investing careers, become frustrated. They often feel like they are spinning their wheels and not making any real progress. Real estate investing can be very much like a roller coaster ride with many ups and downs and peaks and valleys. One of the most effective ways to minimize frustration is to make sure the basics of your business are covered. Master the basics and don't let the minutia of advanced strategies or confusing transactions cause you to lose sight of the simplicity of real estate investing.
The basics of real estate investing include finding potential deals, evaluating their profitability, making offers, and securing financing. If you find that you are so caught up in different areas of your business, and are not evaluating deals on a weekly basis, then you need to re evaluate your activities and re-focus your energies on the basics. The basics will lead to deals and profitable paydays.
