Real Estate Investing Information

Philosophy

We are advocates of the "Get rich slow, with leverage" approach.  This method is a blend of investing philosophies that can be summarized by the following statements:

• Don't quit your day job - View real estate investing as a side job that you will "moonlight" at in order to build a retirement and/or children's education nest egg.  After building an initial portfolio of single-family houses, then look at different investment options.
• If you are willing to do what others aren't for 5 years, you can be financially free for life in 15-20 years - Quite simply, buy 2 investment properties a year for the next 5 years and pay them off as quickly as you can, applying rent increases over time toward principal reduction.  In 15-20 years you will have paid off the 10 properties and should be able to live off the income from those properties - for the rest of your life!
• Use other people's money - Don't miss out on opportunities because "you didn't have the money".  Real Estate Investing is all about knowledge, skills and initiative, not money.  The opportunity to use Leverage is a key reason why real estate investing is superior to investing in other types of assets.  In our own personal experience, we were able to reuse our original $20k nest egg over 20 times, buying, fixing, refinancing and repeating as we went.
• Run a tight ship - Treat investing as a business, get good at it, and run it efficiently.  Avoid other investor's mistakes by learning and investing a little at a time, and expanding your operation when you are ready.
• Be a bargain hunter - Finding great deals is an important part of reducing your risk profile and increasing your assets.  It's easy to get addicted.
• Forget "flipping" - Far more money is made selling "get rich quick" real estate courses than is actually made flipping houses.  It's extraordinarily difficult to buy a house at a way-below market price, pay purchasing, repair, holding & marketing costs, fix and/or flip it and still make money when everything is said and done.  The real money in real estate is made by holding, not selling.
• Always buy from motivated sellers - What this typically means is buying somewhat distressed property from distressed sellers, typically banks or mortgage companies.  NEVER buy investment property from another real estate investor.  There is only so much profit to be made on an individual property, and if there is another investor involved (particularly a more experienced one) chances are the easy money has already been made.

Steps to Success

If you want to be a part of the next real estate investment opportunity (they generally happen once a decade), now is the time to prepare.  Preparation means: learning property types and neighborhoods, determining your risk profile, securing financing (while lending standards are still lax!) and determining entry, holding and exit strategies that will sync with your lifestyle.

• Property selection - We believe it is best to start with single-family houses. They are the most stable and reliably easy to buy and sell of all the various real estate asset sub-classes.
• Neighborhood selection - The primary driver of long-term real estate wealth accumulation is appreciation, and the key component determining appreciation is location. After all, it takes just about as much trouble to invest in a bad area as a good one, so why not invest in only the most-likely-to-appreciate areas? We believe transitional, intown areas generally provide the best opportunity for appreciation.
• Pricing - Shoot for buying at 80% of market for a house needing cosmetic repairs only. Paying too much means taking on too much risk and reducing your potential returns. Paying too little means unnecessarily passing up on good opportunities or buying at the right price in the wrong areas.
• Financing - There are far too many financing options available to attempt to describe here. What we can say is that if your credit is good (FICO score above 650), your options are almost endless. Long gone are the days of mandatory 20% down payments on investment property. One caveat to remember is to avoid over-financing your investment properties, always keep a "cushion" of equity to ride out the bad times.
• Renovation - Your goal in any real estate investment is to own the least expensive home in the most expensive neighborhood you can afford. If that is the case, then the principle of progression says that the more expensive homes will appreciate at a relatively faster rate than your house, and they will pull your house along with them, giving you optimal appreciation. Likewise, don't put so much money in the house that you can never recoup your investment. Be very careful to estimate your improvements accurately in advance, and don't fall prey to the desire to add on and add on. You can run up a rehab bill dramatically if you don't watch every penny. You also need to decide before you start your renovation whether you plan to hold for rental or you want to resell quickly for profit. Because most renters think of their residency as relatively short term, they are willing to accept less in terms of improvements than a buyer will. There is no need to make a rental property fabulous - it simply needs to be reasonably attractive and competitive with the tenant's alternatives.
• Holding & Selling Strategies - There are strong tax incentives for holding a property for more than one year, the most important being a cut in the income tax rate from the typical 28-35% to 15%. We utilize a combination of rental, lease-option and owner financing in the carrying and disposition of our properties.

Market Conditions - Its 1991 all over again!

As the housing market cools and increasingly negative real estate-related articles are appearing everywhere it would appear that now is the worst possible time to invest in real estate.  It may or may not be, but we believe it is also a perfect time to prepare for what we think may be the upcoming buying opportunity of the decade. 

For a comparison to a similar time in the market we do not have to go very far back, there are an amazing number of parallels between now and 1991, to name just a few:

• War in the Middle East
• Increased pricing and uncertainty concerning oil supplies
• An increasingly wobbly but still stable economy
• A cooling real estate market following years of out-performance
• A huge increase in (and problems with) non-traditional loan products
• Large-scale instability in macro-level mortgage lending (1991-S&L crisis, 2006-Fannie Mae problems)

Shortly thereafter, in 1992-1993 the real estate market blew up, the S&L's went under and the real estate market was overwhelmed with a glut of properties.  The market hit its nadir around 1993, not to fully recover until 1995-96.  Our investor friends who had the smarts and the $$ to invest heavily during that time period are mostly semi-retired now.  We believe a similar sort of opportunity may re-surface in the next couple of years.  Remember the famous French quote: "Buy on the cannons, sell on the trumpets".

Real Estate Investment Links:

http://www.creonline.com/ - The Creative Real Estate Investing web site

http://www.gareia.org/ - Our own Georgia Real Estate Investors Association, the largest real estate investment association in America, right here in Atlanta.

http://www.money99.com/ - Local Atlanta real estate guru, John Adams' web site

Real Estate Investing Articles:

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