The Coming Boom For Real Estate Investors
Posted on November 2, 2006
In February 2001 the prime interest rate dropped a full point from 9.5% to 8.5%. This began a downward trend that bottomed out in July 2003 at 4% and remained at this historically low level for an entire year. The low rates produced a huge surge in real estate sales and a dramatic jump in prices. Billions of dollars in profits were made as real estate values soared and a bevy of new experts appeared like cockroaches in the night touting a multitude of ways to get-rich-quick with real estate.
During this period, investors like me pulled back and watched the fanatical frenzy as properties were listed at prices no savvy buyer could justify only to see bidding wars erupt resulting in sales being made that were often above asking prices. In my book The Weekend Millionaire’s Secrets to Investing in Real Estate I refer to this as the “Bigger Fool” theory. Simply stated, it says that if you can buy a property for little or no money down, it doesn’t matter what you pay, a bigger fool will come along and bail you out. Problem is, that’s not investing�it’s speculating. Granted, gambling with real estate can produce some startling profits, but it also can result in huge losses.
In July 2004 the prime rate was raised by the first of eighteen consecutive .25% increases that brought the prime rate to 8.25% by July 2006. These rising rates reined in the overheated real estate market and I predict will produce unparalleled opportunities for investors in the coming years. Rising interest rates make it more difficult for people to qualify for loans, resulting in more competition for rentals and the start of a boom for investors. The last “Bigger Fools” who bought just before the market cooled stand to lose billions and their losses can be investor’s gains.
Real estate goes in cycles just as the stock market does. During these boom times, the lure of quick riches brings thousands of people to seminars to learn how to make money with real estate. Invariably these seminars are promoted as real estate investing seminars, but investing and speculating are not the same. Real estate speculating is buying, usually in the face of higher than ordinary risk, hoping to take advantage of an unexpected rise in prices. It is taking part in any risky venture, whether it involves flipping, short sales, rehabs, notes, mortgages, foreclosures or other methods, on the chance of making huge profits. Investing, on the other hand, is putting time and/or money into properties for the purpose of building wealth and obtaining an income stream. The two are very different!
I’m not making this distinction to be critical of people who speculate in real estate. Many have been very successful. The reason I’m pointing out the difference is because most ordinary working people aren’t willing to gamble with their futures. I never was which is why I chose to be patient, invest and allow the passage of time to pay off mortgages and inflation to increase rents. This combination is what produces income and wealth.
When I bought my first investment property, it was a small house that, at the time, rented for $250 per month. The mortgage payment, including taxes and insurance, was $225 per month and I paid the other $25 to a property manager to handle it because I wanted to be an investor, not take on a second job. Cash flow during those early years was touch and go, but with the passage of time rents gradually rose and the mortgage paid down. Today I still own the house, the mortgage is paid off and it rents for $950 per month. That’s what investing can do!
I could have sold the property and made a nice profit, but then what? Whatever I made, that would be it. If I wanted to make another profit, I’d have to do it all over again. By choosing to be an investor, I get to enjoy a nice income for the rest of my life and then as long as it is properly maintained, my family will enjoy income from it long after I’m gone.
Here’s a tip! Becoming an investor is not glamorous and you won’t see big windfall profits, but it will change your life forever. Creating an income stream you can enjoy in retirement and building an estate you can leave to your heirs requires patience and persistence. To do this you must develop the three Ds of success; Desire, Discipline and Dedication. These characteristics are discussed in my book Weekend Millionaire Mindset: How Ordinary People Can Achieve Extraordinary Success. Naturally, the younger you are the more time your investments have to grow and mature, but regardless of your age, whatever income your investments generate; it will be more than you would have if you never got started.
I realize that real estate investing is a scary thought for many people, but stepping into it cautiously and doing it right can produce startling results. There’s no better time to start than right now! As astrologists say, “The stars are all in proper alignment.” To put you at ease, we developed the Weekend Millionaire Offer Generator, a tool that takes the teachings from the Weekend Millionaire book series and turned them into a computer program that guides even novice investors through the process of making sensible offers that will cash flow, build wealth and generate income. You can check it out on our website at www.weekendmillionaire.com.
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