Unless you've been living in a cave for the past few months, I'm sure you've been seeing all of the negative press about how terrible this housing market is. The newspapers and talking hairdo's on TV proclaim doom and gloom for our real estate future and housing prices. Now I'm not a smart man, but something occurred to me the other day...it can't be a bad market for both sellers and buyers...
In fact, there are some unique opportunities for smart investors that we might never see again in our lifetime. Housing prices in some of our neighborhoods have been drastically devalued AND interest rates are near historical lows for those who qualify. To put it bluntly, if you can put any skin in the game you'll make a killing buying real estate over the next year.
As I discussed in my last blog, the best investment strategy I've seen for the average homeowner is to take a small chunk of equity from their current house and use it to buy a nicer, bigger house in a better neighborhood without having to sell. Have you ever heard of "Buy low, sell high?" In real estate, just doing this correctly is a huge predictor of future high net worth.
Most people think they need to sell their home first before buying another one. In this extreme buyer's market, selling a house can be extremely difficult, if not impossible without walking away from most of your hard-earned equity. You're not only competing with other homeowners but droves of short sales and foreclosures.
What about buying in this buyers market then delaying your sale until it's a more balanced market? Think about it - you'll be buying low and selling high, a financial strategy that takes some management but will yield you huge amounts of money. In fact, the typical "Millionaire Next Door" is someone who bought a few houses over the years, without selling, and let them all build wealth side by side.
When buying a home a realtor's services are free to you. I can even negotiate a credit from the seller to pay for the majority of the closing costs for the home and the loan. Many times my buyers only have to pay a $1,000 deposit out of pocket for the entire transaction! My favorite tool is to negotiate a credit from the seller that I use to buy down the buyer's interest rate on the loan. Thank you Mr. Seller - you just paid for my realtor, most of my closing costs, and bought down my loan to lower my monthly payment!
I've had a lot of success talking people out of selling. I subscribe to a philosophy that is similar to the godfather of equities investing, Warren Buffet: buy quality real estate correctly and hold it long term. The most sure-fired way to build long term wealth is as simple as that!
It's very simple:
- Refinance. First we look at the financing on your current property, and take a small chunk of equity out to pay off bad debt and serve as the down payment for a future purchase. We can customize financing that fits your needs whether you plan on holding the property forever or 3-5 years until it's a seller's market, and I recommend putting some money in the bank as a safety net.
- Find a new house. This is the fun part - seeing what incredible deals are out there on bigger, nicer houses in great neighborhoods, instantly taking advantage of the buyer's market.
- Get a great purchase loan. This will be an owner occupied loan as well! You'll be amazed at how far your money will go, especially with today's low interest rates and little or no money down.
- Rent your first property. Finding a renter is usually as easy as putting a sign in the yard and placing a free ad on Craig's List. By the way, with the turmoil in the housing market rental prices are expected to dramatically increase over the next few years, so you'll have a built-in raise.
Now I know what you're going to say;
"But Kevin I don't want to be a landlord."
No one wants to be a landlord, it's one of the most unglamorous jobs out there, but everyone wants to make millions of dollars by investing in real estate wisely and retire early in the Caribbean and sit on the beach and drink Mai Tais all day. Which sounds better?
"But Kevin the renter isn't covering my whole monthly mortgage payment"
Remember that there are two parts to any investment - the money that you put in and the money you get out. Once we factor in the tax deductions, money in the bank as a safety net, increased rents, paid off credit card debt, and realtor commissions that you're not paying, I bet you you're looking a lot better on a monthly basis than you think.
Here's a perfect example of some real life folks that I've helped become "Move Up Buyers." They may not realize it yet, but they'll probably be millionaires within a ten year period because they did the right thing at the right time (and worked with me).
Marco and Silvia came to me with almost no financial education. They were humble, hard working people who had lived in a small home in a modest neighborhood for six years and had amassed about $150,000 in equity over that time. They had three beautiful, energetic children and realized that this might be their time to move up to a home that had 4 bedrooms in a safer neighborhood that had a park where they could play soccer. Unfortunately they had about $40,000 in credit card debt and auto loans that were draining them on a monthly basis.
Instead of selling, I was able to refinance their house with a long-term, owner occupied loan and take out $90,000 of equity. With that money we paid off all of their bad debt and also had 20% to put down on their dream home. They got a great deal on a big house that the kids loved, and . With no more credit card payments, and rental income coming in on their first house, they only paid $50 a month more in total outflow to be in their dream house. Now they're taking home larger paychecks every month because of the tax deductions and over the years will have two assets appreciating. When they're ready to retire in twenty years or so they'll have guaranteed monthly passive income and a few million dollars in equity to help fund their retirement.
So give me a call if you want to find out more about Moving On Up!
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