Another year has flown by and we all start thinking about the successes and challenges of 2010. The great thing for all of us is that the past does not matter any longer. We have been given the gift of future opportunity by God and we alone choose whether to wallow around in frustration about past mistakes, or take advantage of the fresh start that a new year provides.
Regardless of your current situation, it can be changed! The key is for you to make a decision RIGHT NOW to make the changes you really want in your life. We are not helpless victims without any control over our lives and situations.
Take some time to think about the life you want in 2011. Make it fun and get the whole family involved. Dream about what you want to be like, what you want to do, where you want to go, how your heart desires to serve others and what you want to own. Most of us don't take the time to dream anymore as we are "mature adults". How can you really make a plan if you don't even know what you want?
As you dream, get your emotions into the act. How does the successful achievement of your desires make you feel. Enjoy the peace of mind you have as you get that bill paid, the hot sun on your face as your spend time on that far away island. Imagine the joy you feel as you minister to the needs of someone less fortunate than yourself. Bask in the glow of a better relationship with your spouse and kids. Think about the beautiful reconciliation with broken relationships of the past. Even dare to enjoy that new item you have been dreaming about for years.
As you sit and enjoy the future, start to make a plan to make it reality. It is amazing that the smallest, simplest steps can have a huge impact on fulfilling the dreams we have thought were impossible to achieve. Just thinking about them, and taking a small step each day will bring about massive change in your life.
To make your dreams as real as possible, here are a few tips:
1. Write down what you want
2. Post it somewhere that will force you to read your dreams every day (bathroom mirror, frig, office desk)
3. Each day after you read about your dreams, take the time to experience the emotions attached. Feel the goodness of achieving them.
4. Ask yourself, what is the next best step I can take today to make these dreams come true. Make the steps small and easy.
5. Most importantly, have faith in God. He has created you and placed the dreams you have in your heart. Trust Him to do "immeasurably more than we can ask or imagine".
If you are tired of the joke we play on ourselves called New Years Resolutions, try something different this year. Take the steps above and see where 2011 takes you.
Happy New Year and may God bless you and your family.
Jeff
A blog discussing the benefits and challenges of real estate investing in todays economy
Friday, December 31, 2010
Monday, December 27, 2010
The Name of the Game is Cash Flow
Every time you watch the news, read a paper or look at your inbox, you hear tons of investment advice. Everybody wants to sell you something and they all try and make a great case for why their investment suggestion is "the bomb".
As you might guess, I am a big believer in real estate (yes, even in this market!). It is not that I love real estate for the sake of it, I love its main benefit to me; cash flow.
Most investments that folks peddle are dependent upon capital gains (appreciation, buy low, sell high, etc.). Stocks can pay dividends, but that is not the rule and the dividends can be stopped at any time. Beyond that, you normally get stuck waiting for the price you can sell for to exceed the price you paid (less broker fees of course!).
The beauty of real estate is the cash flow you get regardless of the value the property has. If you buy today and the value decreases, you still make money on your investment. When you consider the compound effects of leverage and tax benefits, real estate is an investment like no other. That is why it is the single biggest wealth producer in America.
Are there downsides? You betcha, but they are easily remedied by the smart investor. The biggest reasons I get from people that keep them from investing in real estate focus on fear and lack of knowledge. We always fear what we don't know or understand. We also assume that if other people don't do it, we probably should'nt either.
Consumers in the US are taught to invest in 2 things; IRA's and 401k's. This means that we are encouraged and taught to invest in 1 asset class only, stocks. We are told to keep our money in the market and ride out the down times and keep a long term perspective on our investment. We are also encouraged to "dollar cost average" our investment, which simply means to buy the same stocks repeatedly regardless of the price. The idea being that you can average your acquisition price over a long period time which is supposed to improve your overall returns.
It is amazing to me that we all simply buy this advice because somebody that is an expert (salesman) says it is good for us. I bet a lot of you are thinking that advice is not so good now given the huge losses most people have taken over the past 2-3 years. On top of this, the very same people that managed your money and encouraged your investment ALWAYS get paid regardless of how your investment does. The fees you pay out are the management fees for the employees and traders that manage the fund you invested in. The Wall Street guys will make money regardless while playing the game with your money. You win, they get paid more, you lose, they still get paid!
I wish I could get a job like that! To top it all off, these same folks use your stocks to perform various sophisticated trades and transactions that do not benefit you yet makes then huge returns. If you don't remember anything else I write, remember that we are being taught to hand over our money to the Wall Street guys to play with without any repurcussions for their performance or their profits. This is NOT a smart play by anybody (except the Wall Street guys that benefit which is brilliant for them!).
For 2011 start thinking independently of the so-called experts. The deck is stacked in favor of the big banks and financial firms. If they get clobbered by their bad decisions, you and I get to bail them out with taxpayer funded programs. If they make tons of money and you lose, oh well, no bail out for you.
So, after my railing against the Wall Street crowd, that is why I love real estate. I control it. I can leverage it. It provides me monthly income. And it is tangible. That means that it will be there and functional regardless of its market value. That is a far safer, better investment than almost anything else out there.
As you might guess, I am a big believer in real estate (yes, even in this market!). It is not that I love real estate for the sake of it, I love its main benefit to me; cash flow.
Most investments that folks peddle are dependent upon capital gains (appreciation, buy low, sell high, etc.). Stocks can pay dividends, but that is not the rule and the dividends can be stopped at any time. Beyond that, you normally get stuck waiting for the price you can sell for to exceed the price you paid (less broker fees of course!).
The beauty of real estate is the cash flow you get regardless of the value the property has. If you buy today and the value decreases, you still make money on your investment. When you consider the compound effects of leverage and tax benefits, real estate is an investment like no other. That is why it is the single biggest wealth producer in America.
Are there downsides? You betcha, but they are easily remedied by the smart investor. The biggest reasons I get from people that keep them from investing in real estate focus on fear and lack of knowledge. We always fear what we don't know or understand. We also assume that if other people don't do it, we probably should'nt either.
Consumers in the US are taught to invest in 2 things; IRA's and 401k's. This means that we are encouraged and taught to invest in 1 asset class only, stocks. We are told to keep our money in the market and ride out the down times and keep a long term perspective on our investment. We are also encouraged to "dollar cost average" our investment, which simply means to buy the same stocks repeatedly regardless of the price. The idea being that you can average your acquisition price over a long period time which is supposed to improve your overall returns.
It is amazing to me that we all simply buy this advice because somebody that is an expert (salesman) says it is good for us. I bet a lot of you are thinking that advice is not so good now given the huge losses most people have taken over the past 2-3 years. On top of this, the very same people that managed your money and encouraged your investment ALWAYS get paid regardless of how your investment does. The fees you pay out are the management fees for the employees and traders that manage the fund you invested in. The Wall Street guys will make money regardless while playing the game with your money. You win, they get paid more, you lose, they still get paid!
I wish I could get a job like that! To top it all off, these same folks use your stocks to perform various sophisticated trades and transactions that do not benefit you yet makes then huge returns. If you don't remember anything else I write, remember that we are being taught to hand over our money to the Wall Street guys to play with without any repurcussions for their performance or their profits. This is NOT a smart play by anybody (except the Wall Street guys that benefit which is brilliant for them!).
For 2011 start thinking independently of the so-called experts. The deck is stacked in favor of the big banks and financial firms. If they get clobbered by their bad decisions, you and I get to bail them out with taxpayer funded programs. If they make tons of money and you lose, oh well, no bail out for you.
So, after my railing against the Wall Street crowd, that is why I love real estate. I control it. I can leverage it. It provides me monthly income. And it is tangible. That means that it will be there and functional regardless of its market value. That is a far safer, better investment than almost anything else out there.
Friday, December 24, 2010
Why Is Real Estate a Smart Play?
With all the uncertainty in the economy, most people are pulling back on spending hoping to survive any loss of income they may experience. This reaction is understandable and makes sense when you consider basic human behavior. However, the smart investor understands what is happening in the US and the world economies and sees the opportunity, not the fears.
As I type these words, the US Census report has just revealed that the population of the US grew to 309 million people in 2010, almost 10% more than in 2000. I assume that the real population is actually higher due to illegal aliens and people that work to stay out of the “system”. The census confirms that population growth in the United States is still growing regardless of lowered birth rates. This is great news for real estate investors. Every one of those 309 plus million people need the basics of life, including a place to lie in bed at night. A home is not a luxury, it is a necessity.
In order to prosper in this environment, you need to understand some basics about the US (and world) economy. The US removed the dollar from the gold standard in 1971. This freed the central bank in the US (the Federal Reserve, or Fed) to print as much currency as they wished since the only thing backing the dollar is the “full faith and credit of the United States”. The Fed encouraged banks to ramp up lending which grows the economy fast. Let me stop here and give a very brief lesson on how our economy works.
Until 1971 the dollar was pegged to some degree to gold. This meant that the value of the dollar (its buying power) was tied to the value of gold and this helped prevent wild fluctuations in the value of the dollar. When President Nixon freed dollars and gold from each other, he unleashed the true potential of the Fed in creating currency. The Fed is not a governmental entity. It is a privately held bank that was granted currency creation powers by the US Congress in 1913. Until 1971, the Fed was required to maintain a reserve in gold at the US Treasury that was equal to a percentage of currency it printed. Once the dollar and gold were separated, the Fed could create currency at will.
The Fed creates currency by loaning currency to the government of the US. This means that every time the government wants to spend money, they just go to the Fed with bonds (T Bills, bonds, etc.) and the Fed “buys” them using newly created currency. Putting it simply, the Fed just writes check to the government for whatever amount the government wants. This “check” from the Fed is not charged against any account the Fed has. It is simply a book entry.
So, the Fed creates currency at the stroke of a pen and the government puts this currency into circulation in the form of dollars when the government pays its bills. The real kicker here is that the Fed is then due interest payments from the government on the currency the Fed just created out of thin air! This interest is payable from the tax revenues the government collects from the US citizens. It is interesting to note that the law permitting the government to collect income taxes was passed in 1913 as well.
The government, and the organizers/owners of the Fed, knew the government would need more tax revenues to pay the interest payments due on this new borrowed currency. This is why we can NEVER pay off the debt the country owes. We keep borrowing currency from the Fed in which we owe them interest payable in dollars which are borrowed, over and over. It is THE main Ponzi scheme in the world and the US is the biggest player.
The second part of this economic equation is the process of fractional banking. This simply means that for every dollar deposited into a bank, the bank can make loans for greater then the deposits on hand. Currently in the US, that ratio is 10% required deposit reserves. So, if you deposit $100 into your savings account at the bank, the bank can loan out $900 to other borrowers.
This money is not sitting in their vaults, it is simply new currency created when the borrower signed the loan documents. When you consider that this loan is then deposited into the borrower’s checking account that means his bank can now make additional loans.
Look at it this way. I deposit $100 into my bank. You borrow $900 from my bank (they can do this now per the Fed reserve requirements of keeping only $10 on hand for each $100 deposited). You deposit the $900 check from my bank into your bank. Your bank then loans $9,000 to your neighbor who buys a car. The seller of the car then deposits the $9,000 into her bank and her bank loans out $90,000 to your coworker for a new house.
All of this started with your simple $100 deposit. This is how the US economy works every day. We are encouraged to borrow and spend because this causes the supply of currency to grow, which means more dollars circulate and even more goods and services get provided. As the currency expands, we say that the economy is growing and everybody seems really happy. THE ONLY WAY FOR THE ECONOMY TO GROW IS TO KEEP THE CURRENCY SUPPLY EXPANDING. THIS MEANS WE MUST CONTINUE TO BORROW AND SPEND MORE EVERY DAY (CONSUMERS, BUSINESSES AND GOVERNMENT).
This all works great until people start realizing that the amount of currency in circulation starts buying less and less stuff. This means we start to see that a loaf of bread now costs $10 when it used to be $2. This is called inflation and it means that each dollar is now worth less and less. The highest value a dollar has is when it is “born” at the Fed. As it circulates and “ages” it becomes worth less because more and more dollar siblings are being born every day.
When people start realizing that it takes more money to survive, they start getting cautious and then start hoarding their dollars. This means that people don’t borrow and spend as much money. This in turn causes the currency supply to contract which means the economy is in a recession. If you don’t borrow money to buy a new car, the car dealer can’t stay in business. He then lays off salesmen who cannot buy new furniture at your store. You then have to close shop and release all of your employees and the cycle continues until a depression hits.
The Fed and the government don’t like this as it affects their ability to stay in power and make money, so they try and stimulate the economy. They do this by lowering interest rates so that people will be enticed to borrow money. They also create policies and legislation to spend more money using public works and social programs. The intent is to create more currency in circulation so that people will want to spend and borrow again, thereby causing the economy to expand and end the recession.
Eventually, after so many recession/expansion cycles the market will correct itself and the true value of goods and services will be determined in the currency circulated. This normally happens after some huge “bubble” pops in some asset category and people lose significant amounts of their wealth due to inflation. The process can only be repeated so many times before the currency is destroyed and nobody wants to accept it for payment of goods and services. People then start demanding other types of payment such as real estate, livestock, precious metals, etc (stuff you can hold and use) and then the economy collapses along with the currency.
It is important to note that everyone who holds their wealth in currency (US Dollars) will lose the majority of their wealth when inflation hits. That $500,000 IRA account will not buy nearly the amount of goods and services it did prior to the high inflation event. That is why investors move out of "cash" and stocks and into commodities and real estate when high inflation is anticipated. Commodities and real estate provide a "hedge" against inflation as they amount of dollars required to buy these items grows in tandem with the rate of inflation, thereby preserving the investors wealth.
It is the job of the smart investor to figure out where he is in this cycle so he can invest his money wisely. If he does not, he can lose his entire wealth over night. I have taken the time to explain the economy and currency so that you can better understand what is happening in the US and the world right now. You need to determine if you should hold your wealth in vast amounts of currency, or should it be transferred into something else.
It is my opinion that cash flowing assets are the safer bet at this time. That is why I am passionate about real estate. People must have shelter, it can be leveraged and still provide POSITIVE cash flow, AND it is tangible which means it has real, intrinsic value (unlike the dollar).
Keep this in mind. Even if the “value” of a house goes down, the payment required to rent it will usually stay constant or rise with inflation. This means that you can invest cash into investment real estate and “hedge” your risk of inflation. Hedging means that you reduce the risk of your cash losing value as inflation in prices outpaces the ability of your cash to buy products and services.
I want to leave you with one final comparison. Let’s says you buy a rental house today with your cash and rent it for $900/month. Let’s further assume that the “value” of this house declines by 50% over the next year. You are still getting $900 every month off of this investment. If you paid $100,000 for the house, you were getting $10,800, or about 10% in return for your investment. Even if the house value goes down, it means nothing to you as you are not selling. You still get $10,800 every year off of that investment. Eventually inflation will come knocking and that house will go way up in value again (not to mention the rents!). You win either way as the name of the game is cash flow.
If, however, you put that $100,000 into a CD, you will make about $2,000 per year. The value of your investment is actually decreasing each year as the current inflation rate is higher than that. This means that if you cash in your CD for $102,000 in 12 months, you will not be able to buy as much as you could have 12 months earlier for $100,000. You are losing money every day. If you add the possibility of higher inflation, you could lose far more than you think possible as the value of your cash will go down as inflation rises (exponentially, not linearly).
As long as the inflation rate in the economy exceeds your rate of return, you will lose. You must realize that the bank you deposit your money in will always pay less than the rate of inflation. That is how they make money. It is just like gambling in Vegas. Eventually the house (bank) will always win.
Call me or email me so you can get started in real estate investing today. Today is the day for action.
As I type these words, the US Census report has just revealed that the population of the US grew to 309 million people in 2010, almost 10% more than in 2000. I assume that the real population is actually higher due to illegal aliens and people that work to stay out of the “system”. The census confirms that population growth in the United States is still growing regardless of lowered birth rates. This is great news for real estate investors. Every one of those 309 plus million people need the basics of life, including a place to lie in bed at night. A home is not a luxury, it is a necessity.
In order to prosper in this environment, you need to understand some basics about the US (and world) economy. The US removed the dollar from the gold standard in 1971. This freed the central bank in the US (the Federal Reserve, or Fed) to print as much currency as they wished since the only thing backing the dollar is the “full faith and credit of the United States”. The Fed encouraged banks to ramp up lending which grows the economy fast. Let me stop here and give a very brief lesson on how our economy works.
Until 1971 the dollar was pegged to some degree to gold. This meant that the value of the dollar (its buying power) was tied to the value of gold and this helped prevent wild fluctuations in the value of the dollar. When President Nixon freed dollars and gold from each other, he unleashed the true potential of the Fed in creating currency. The Fed is not a governmental entity. It is a privately held bank that was granted currency creation powers by the US Congress in 1913. Until 1971, the Fed was required to maintain a reserve in gold at the US Treasury that was equal to a percentage of currency it printed. Once the dollar and gold were separated, the Fed could create currency at will.
The Fed creates currency by loaning currency to the government of the US. This means that every time the government wants to spend money, they just go to the Fed with bonds (T Bills, bonds, etc.) and the Fed “buys” them using newly created currency. Putting it simply, the Fed just writes check to the government for whatever amount the government wants. This “check” from the Fed is not charged against any account the Fed has. It is simply a book entry.
So, the Fed creates currency at the stroke of a pen and the government puts this currency into circulation in the form of dollars when the government pays its bills. The real kicker here is that the Fed is then due interest payments from the government on the currency the Fed just created out of thin air! This interest is payable from the tax revenues the government collects from the US citizens. It is interesting to note that the law permitting the government to collect income taxes was passed in 1913 as well.
The government, and the organizers/owners of the Fed, knew the government would need more tax revenues to pay the interest payments due on this new borrowed currency. This is why we can NEVER pay off the debt the country owes. We keep borrowing currency from the Fed in which we owe them interest payable in dollars which are borrowed, over and over. It is THE main Ponzi scheme in the world and the US is the biggest player.
The second part of this economic equation is the process of fractional banking. This simply means that for every dollar deposited into a bank, the bank can make loans for greater then the deposits on hand. Currently in the US, that ratio is 10% required deposit reserves. So, if you deposit $100 into your savings account at the bank, the bank can loan out $900 to other borrowers.
This money is not sitting in their vaults, it is simply new currency created when the borrower signed the loan documents. When you consider that this loan is then deposited into the borrower’s checking account that means his bank can now make additional loans.
Look at it this way. I deposit $100 into my bank. You borrow $900 from my bank (they can do this now per the Fed reserve requirements of keeping only $10 on hand for each $100 deposited). You deposit the $900 check from my bank into your bank. Your bank then loans $9,000 to your neighbor who buys a car. The seller of the car then deposits the $9,000 into her bank and her bank loans out $90,000 to your coworker for a new house.
All of this started with your simple $100 deposit. This is how the US economy works every day. We are encouraged to borrow and spend because this causes the supply of currency to grow, which means more dollars circulate and even more goods and services get provided. As the currency expands, we say that the economy is growing and everybody seems really happy. THE ONLY WAY FOR THE ECONOMY TO GROW IS TO KEEP THE CURRENCY SUPPLY EXPANDING. THIS MEANS WE MUST CONTINUE TO BORROW AND SPEND MORE EVERY DAY (CONSUMERS, BUSINESSES AND GOVERNMENT).
This all works great until people start realizing that the amount of currency in circulation starts buying less and less stuff. This means we start to see that a loaf of bread now costs $10 when it used to be $2. This is called inflation and it means that each dollar is now worth less and less. The highest value a dollar has is when it is “born” at the Fed. As it circulates and “ages” it becomes worth less because more and more dollar siblings are being born every day.
When people start realizing that it takes more money to survive, they start getting cautious and then start hoarding their dollars. This means that people don’t borrow and spend as much money. This in turn causes the currency supply to contract which means the economy is in a recession. If you don’t borrow money to buy a new car, the car dealer can’t stay in business. He then lays off salesmen who cannot buy new furniture at your store. You then have to close shop and release all of your employees and the cycle continues until a depression hits.
The Fed and the government don’t like this as it affects their ability to stay in power and make money, so they try and stimulate the economy. They do this by lowering interest rates so that people will be enticed to borrow money. They also create policies and legislation to spend more money using public works and social programs. The intent is to create more currency in circulation so that people will want to spend and borrow again, thereby causing the economy to expand and end the recession.
Eventually, after so many recession/expansion cycles the market will correct itself and the true value of goods and services will be determined in the currency circulated. This normally happens after some huge “bubble” pops in some asset category and people lose significant amounts of their wealth due to inflation. The process can only be repeated so many times before the currency is destroyed and nobody wants to accept it for payment of goods and services. People then start demanding other types of payment such as real estate, livestock, precious metals, etc (stuff you can hold and use) and then the economy collapses along with the currency.
It is important to note that everyone who holds their wealth in currency (US Dollars) will lose the majority of their wealth when inflation hits. That $500,000 IRA account will not buy nearly the amount of goods and services it did prior to the high inflation event. That is why investors move out of "cash" and stocks and into commodities and real estate when high inflation is anticipated. Commodities and real estate provide a "hedge" against inflation as they amount of dollars required to buy these items grows in tandem with the rate of inflation, thereby preserving the investors wealth.
It is the job of the smart investor to figure out where he is in this cycle so he can invest his money wisely. If he does not, he can lose his entire wealth over night. I have taken the time to explain the economy and currency so that you can better understand what is happening in the US and the world right now. You need to determine if you should hold your wealth in vast amounts of currency, or should it be transferred into something else.
It is my opinion that cash flowing assets are the safer bet at this time. That is why I am passionate about real estate. People must have shelter, it can be leveraged and still provide POSITIVE cash flow, AND it is tangible which means it has real, intrinsic value (unlike the dollar).
Keep this in mind. Even if the “value” of a house goes down, the payment required to rent it will usually stay constant or rise with inflation. This means that you can invest cash into investment real estate and “hedge” your risk of inflation. Hedging means that you reduce the risk of your cash losing value as inflation in prices outpaces the ability of your cash to buy products and services.
I want to leave you with one final comparison. Let’s says you buy a rental house today with your cash and rent it for $900/month. Let’s further assume that the “value” of this house declines by 50% over the next year. You are still getting $900 every month off of this investment. If you paid $100,000 for the house, you were getting $10,800, or about 10% in return for your investment. Even if the house value goes down, it means nothing to you as you are not selling. You still get $10,800 every year off of that investment. Eventually inflation will come knocking and that house will go way up in value again (not to mention the rents!). You win either way as the name of the game is cash flow.
If, however, you put that $100,000 into a CD, you will make about $2,000 per year. The value of your investment is actually decreasing each year as the current inflation rate is higher than that. This means that if you cash in your CD for $102,000 in 12 months, you will not be able to buy as much as you could have 12 months earlier for $100,000. You are losing money every day. If you add the possibility of higher inflation, you could lose far more than you think possible as the value of your cash will go down as inflation rises (exponentially, not linearly).
As long as the inflation rate in the economy exceeds your rate of return, you will lose. You must realize that the bank you deposit your money in will always pay less than the rate of inflation. That is how they make money. It is just like gambling in Vegas. Eventually the house (bank) will always win.
Call me or email me so you can get started in real estate investing today. Today is the day for action.
Should You Invest In Real Estate Now?
One of the biggest questions people are asking about real estate investing is ‘what should I do now’? Even though the current economy is causing many people to question everything, AND making people experience fear, basic rules of finance and investing still apply. Investors simply must adapt their strategies to work in the current environment. Having said that, investing in residential real estate still makes great sense.
Remember, the purpose for investing in residential real estate is to make money. Many investors built their entire business and philosophy on flipping houses, and this strategy is VERY difficult now. Savvy, successful investors will adapt their focus on the investing activities that will make them money today and later. The old standby of cash flow investing is one of the best options the investor has today. Investors need to remember that wealth is the ability to earn cash flow without having to work for it. Rental real estate fits this definition and this is why rental property has always been a solid wealth builder for investors.
The answer to the question above is that you need to be buying investment property for your personal portfolio. The focus is on taking advantage of the great values in property pricing, while enjoying rental rates that have not fallen at anywhere near the rate of property values. This economy has created the perfect opportunity to buy houses and rent them at incredible cash flow rates. Simply put, you can buy at the bottom of the value cycle, get rents that have not gone down, finance the purchase at incredibly low rates and create an amazing cash cow that will last as long as you desire.
This is the best time in decades to buy residential investment property. If you have cash sitting in CD’s, IRA’s, money market accounts, or other “traditional” investments making around 1% (or losing money!), you need to look at investment real estate. A good rental property will provide around 15% cash on cash return on your investment if you pay cash for the house. That is obviously far better than the majority of standard investments offered by traditional financial services firms today. If you decide to finance your purchase, your cash on cash will go up.
Many of you remember the S&L crisis of the late eighties and early nineties. I would be willing to bet that many of you lamented the missed opportunity you had when houses were being sold at ridiculous discounts. Well, here’s your chance again. Many experts believe that more people will rent in the future due to housing price volatility, impaired credit (due to this economy) and tighter underwriting standards. Add this potential increase in renters to a huge slow down in new construction AND increasing population trends, and you have the perfect storm to benefit your wealth.
In addition to these positive factors, it is my opinion that we will move into a period of inflation (and possible hyperinflation) over the next 12-24 months. The real estate market is currently in a deflationary period, which is providing the great opportunity to buy and rent houses. Once the huge amount of currency that the FED has created begins to circulate, inflation will hit with a vengeance and those cheap houses will start to go up in cost fast. Remember that inflation is the friend of physical assets and the mortal enemy of the cash you have (currency=dollars).
In other words, if you have nothing but cash, you will lose huge real wealth as that cash will buy less and less with each passing day. If you have your wealth parked in physical assets, you should at least maintain your wealth in the worst case, and most likely increase your wealth significantly. The beautiful thing about real estate is that you can buy at today’s low prices and borrow long term at today’s low rates. When inflation hits, you can pay the debt back using the new devalued dollars even though the debt is in old dollars. This makes the debt MUCH easier to repay and improves your cash flow significantly. In other words, if huge inflation hits the US, your income will go up in terms of the currency you are paid with. However, the debt on your investments will remain the same. This allows you to pay your mortgages off very fast and easy using your massive piles of the newly printed (and almost worthless) currency!
On top of all these great economic benefits, investment real estate offers great tax benefits which may lower your income tax bill each year. Today is the day! If you have ever considered investing in real estate, you are living in one of the best times in history to get started.
Remember, the purpose for investing in residential real estate is to make money. Many investors built their entire business and philosophy on flipping houses, and this strategy is VERY difficult now. Savvy, successful investors will adapt their focus on the investing activities that will make them money today and later. The old standby of cash flow investing is one of the best options the investor has today. Investors need to remember that wealth is the ability to earn cash flow without having to work for it. Rental real estate fits this definition and this is why rental property has always been a solid wealth builder for investors.
The answer to the question above is that you need to be buying investment property for your personal portfolio. The focus is on taking advantage of the great values in property pricing, while enjoying rental rates that have not fallen at anywhere near the rate of property values. This economy has created the perfect opportunity to buy houses and rent them at incredible cash flow rates. Simply put, you can buy at the bottom of the value cycle, get rents that have not gone down, finance the purchase at incredibly low rates and create an amazing cash cow that will last as long as you desire.
This is the best time in decades to buy residential investment property. If you have cash sitting in CD’s, IRA’s, money market accounts, or other “traditional” investments making around 1% (or losing money!), you need to look at investment real estate. A good rental property will provide around 15% cash on cash return on your investment if you pay cash for the house. That is obviously far better than the majority of standard investments offered by traditional financial services firms today. If you decide to finance your purchase, your cash on cash will go up.
Many of you remember the S&L crisis of the late eighties and early nineties. I would be willing to bet that many of you lamented the missed opportunity you had when houses were being sold at ridiculous discounts. Well, here’s your chance again. Many experts believe that more people will rent in the future due to housing price volatility, impaired credit (due to this economy) and tighter underwriting standards. Add this potential increase in renters to a huge slow down in new construction AND increasing population trends, and you have the perfect storm to benefit your wealth.
In addition to these positive factors, it is my opinion that we will move into a period of inflation (and possible hyperinflation) over the next 12-24 months. The real estate market is currently in a deflationary period, which is providing the great opportunity to buy and rent houses. Once the huge amount of currency that the FED has created begins to circulate, inflation will hit with a vengeance and those cheap houses will start to go up in cost fast. Remember that inflation is the friend of physical assets and the mortal enemy of the cash you have (currency=dollars).
In other words, if you have nothing but cash, you will lose huge real wealth as that cash will buy less and less with each passing day. If you have your wealth parked in physical assets, you should at least maintain your wealth in the worst case, and most likely increase your wealth significantly. The beautiful thing about real estate is that you can buy at today’s low prices and borrow long term at today’s low rates. When inflation hits, you can pay the debt back using the new devalued dollars even though the debt is in old dollars. This makes the debt MUCH easier to repay and improves your cash flow significantly. In other words, if huge inflation hits the US, your income will go up in terms of the currency you are paid with. However, the debt on your investments will remain the same. This allows you to pay your mortgages off very fast and easy using your massive piles of the newly printed (and almost worthless) currency!
On top of all these great economic benefits, investment real estate offers great tax benefits which may lower your income tax bill each year. Today is the day! If you have ever considered investing in real estate, you are living in one of the best times in history to get started.
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