Real Estate Knowledge Is Not Power!

It is often said, “Knowledge is power.” Although I think knowledge without action is just knowledge, I like the phrase “Applied Knowledge is power.” I heard this initially first from Dolf de Roos (Real Estate investor and educator) in his Property Investors School. (Remind me to tell you about his REAP investment analysis software.)

The concepts of these posts are not intended to short-cut the process of building wealth, but to accelerate it. I personally believe that It’s OK to get rich quick! Although you must beware of the short comings of most of the get rich quick opportunities, as many seem to be for the benefit of the originator and not so much for those who come later. Perform the necessary due diligence and understand the business or opportunity before investing your funds.

I mention accelerate the process of wealth building verses short-cutting it, because a short cut implies skipping or leaving out some of the steps in the process. Whereas accelerating the process means you gain the required knowledge and experience by being involved in the process, but in a much shorter period of time. (Concept from 20/20, John Wingert)

Knowledge and experience are essential components to grow and maintain your assets, especially as your asset base becomes larger and larger.

10 Reasons (4, 5, and 6) Why I Like Real Estate As An Investment

(To read the prior posts regarding Real Estate Reasons To Invest select the desired post: 1-2, 3, 7-10.)

Number 4

Depreciation. You’re able to depreciate your investment property year after year, even if the value of the asset is increasing. This can significantly affect your annual tax situation. By owning enough real estate you can significantly reduce the taxes you owe, and own a on property that is putting money into your bank account. To maximize this process and better understand this strategy you should be consulting your tax professional.

Number 5

Maximum Flexibility. You have maximum flexibly of what you can put in a real estate agreement. For example if you are unsure of the quality of the deal or have reservations about certain areas of the contract, you can include a clause that allows you to run it by your attorney or other professional before committing to going through the purchase.

You may also be interested in making repairs or improvements to the property before actually closing on the deal. What would be the advantage to doing this? Well as we discussed in one of the earlier points, improvements often increase the value of the property in an amount greater than the improvement. An example may be, if you have a home that you have an agreement to purchase for $200,000, and go in an make improvements increasing the value to $230,000, then you are buying the property with a nice already established equity position.

Number 6

Equity Use.  You can access the increased value of the real estate without needing to sell the asset. Meaning you can pull the equity out of a piece of real estate simply by getting a second loan or line of credit. The key to this strategy is to put the new available equity to work making you more money vs. spending it on a boat, new entertainment center or other doodads (for those of you who are Rich Dad, Poor Dad students).

While there are many more than just 10 Reasons Why I like Real Estate As An Investment, I’ll only mention 4 more.

10 Reasons (3) Why I Like Real Estate As An Investment

(To read the prior posts regarding Real Estate Investment Reasons select the desired link: 1-2, 4-6, 7-10.)

Number 3

Leveraged Improvements. There is the potential to make improvements to the asset and affect its value. The improvements made are often (when done correctly) create a perceived value greater than the original cost of the improvement. For example I have done some research in a particular neighborhood. I found that houses in this neighborhood with a garage and 3 bedrooms bring a significant amount more in sales price and sell faster than houses that only have a carport and two bedrooms. I’m guessing you may be saying “Duh of course they do.” But the real question is how much more does the 3 bedroom home with a garage bring? Is the amount to upgrade the house worth the increased sales price?

Well my research showed the difference between the two types of homes after subtracting the cost of repairs/improvements, closing costs and commissions had a projected net profit a little over $25,000! In case you haven’t been able to tell I’m very conservative and increase my projected costs by 10-15% and my projected sales price to about 95-96% of the current market price for similar homes.

Now to some $25,000 may not seem like much and to others it may seem like a significant amount. Just to be conservative lets say it takes 6 months to sell the house (instead of the 3 months it currently takes to sell in this neighborhood). What if you set yourself up to do two of these per year? An extra $50,000/year for a few hours of extra work and supervision, is an extra $50,000 worth it to you? That’s obviously an answer you will have to answer yourself.

Whether you think an extra $50,000 is a lot or not, I hope your seeing the main point I’m making. You can easily do something to affect the value of the asset. Try doing that with a stock you own.

More to on the way…

10 Reasons (1-2) Why I Like Real Estate As An Investment

(To read the posts regarding Real Estate Reasons To Invest select the desired post: 3, 4-6, 7-10.)

Now I know I’m going to hit a nerve with a few people. These may be the people who are saying, “Have you seen the market lately? Are you nuts?” These are the people and maybe your one of them, who purchased homes and property banking on continued high levels of appreciation. Buying at those inflated prices and now sitting there now owing more than what the property is worth. Not a big deal if you are getting a break even or positive cash flow. Oh you say you have a negative cash flow.

No doubt about, there is significant depreciation going on in many areas. Those of you who are in negative property situation need to pay close attention. If you would have purchased your property at a significant discount to begin with (at least 20% to the current market value) then you would not be in quite the same position of financial pain, as you are now.

If you are not able to purchase a property at a significant discount or realize a significant equity position in a month or two period of time without relying on appreciation alone, then you need to wait for the next deal.

There are many different reasons for the current state of the market. Which I may explain at some point in time in the future. The point is real estate has many great advantages as an investment when you BUY IT RIGHT. The key is putting together a team of professionals to assist you in finding those properties and the areas in which you can significantly reduce your risk and buy right.

These reasons for my liking real estate are in no particular order, and are just a few of the many reasons… Why I Like Real Estate!

Number 1

Leveraged Buying Power. You can buy assets worth greater than the amount you invest. For example Say we have $20,000 to invest in something. If you invest that amount in stock you control $20,000 of stock. If you were to purchase real estate you could use that $20,000 as a 20% down payment to purchase a $100,000 home. Or a 10% payment on a $200,000 home. (There are some other strategies in which you can legitimately, honestly and legally purchase or control a piece of real estate with using only about $5,000 (sometimes less) of the $20,000 and have $15, left over as a safety net).

Number 2

Leveraged Appreciation. This is where it is important to do your due diligence and consult with a professional so you can buy in the higher appreciating areas. Take the $200,000 house in the above example. Say in today’s current market conditions we have an area that is only appreciating at 1% per year. 1% of $200,000 is $2000 for that year. So if your initial investment was $20000 your rate of return is 10%. If you invest the same $20,000 in the stock market you need to get a 10% return. If you were working with a knowledgeable professional who has a team in place and can purchase that same house for only $5000 out of pocket your return on investment would be 40%. Realize there are also some other factors you have to consider into the equation, like taxes (depending upon how long you hold the investment), management fees and other expenses. But I hope you see the potential.

Stay tuned as the next few reasons are on the way…

Get Some Real Estate In Your Portfolio

I believe nearly everyone should have some real estate in their investment portfolio. When you understand all the benefits to owning real estate, it becomes almost a no brainer.

Yes, I know the state of the real estate market. One of the keys to understanding the real estate market is that, it is not a national market, so therefore not every community of the country is experiencing a decline. In reality some markets are actually experiencing significant gains (I know hard to believe). Real estate is local, which means that with a little due diligence you can find some great deals, across the country or maybe even in your backyard depending on where you are located.

(To locate some of the highest appreciating markets visit: RealMarketMastery.com)

There are basically two ways to be involved in real estate. One is through the business of real estate. Often a shorter term perspective involving buying and selling it, rehabbing it, flipping it, developing it, or some type of activity that lends itself to a repetitive activity often lending itself to regular, predictable cash flows due to the continuous business activity.

The other way to be in real estate is through the investment of real estate, which is generally a longer term perspective often involving buying real estate notes or deeds of trust, buying property and holding it as a rental, buying land and holding it, or private lending. I will explain some of these terms in the coming posts.

For now just realize that although many of the papers are portraying doom and gloom, many of the people and businesses that know and understand real estate are now searching for buying opportunities.

Don’t wait for the newspapers and magazines to tell you the market is turning around. Begin putting your team of professionals together now and begin your due diligence and research. You’ll be able to determine when the time to buy is at hand.

REALTORS vs. Non REALTORS When Investing

Many people have heard the term REALTOR^® and often think it is synonymous with a real estate agent. Most REALTORS^® are licensed to sell real estate but not all people licensed to sell real estate are REALTORS^®.

You may be thinking, so what is the difference? In general A REALTOR^® is person who is licensed to sell real estate and has agreed to follow a code of ethics and a standard of practice as determined by the National Association of REALTORS^®.

Areas that are addressed in the code of ethics are: Promotion of Client’s Interest, Misrepresentation, Cooperation, Property Disclosure, Disclosure of REALTOR’S^® interest (ownership in the property), Rebates, Compensation, Commingling of Funds, Written Real Estate Agreements, Discrimination, Specialization or lack of, Advertising, Practicing of Law, State Board and Association Tribunals, False or Misleading Statements Regarding Competitors, Representation, Disputes and Arbitration.

(The specifics regarding these areas can be found here: REALTOR^® Code of Ethics.)

So the question is when you are putting your team of professionals together to assist you in carrying out your asset accumulation plan, do you want someone who has agreed to follow a strict code of ethics, or someone who has not agreed to any formal ethical code or standard at all? The choice is always yours to make. Ask, inquire and find out the details of the professional that you are considering.

Being creative in real estate can easily be done by following ethical guidelines. Investing and operating with ethical guidelines creates an even better scenario. When everyone involved in the transaction understands the details it truly becomes a win-win transaction.

Real Estate Investments… Professional Search

Most (but not all) of the asset building strategies that I share are pertaining to real estate in some way. Why? Because I really, really, really like real estate, and the real estate market is such a diverse market place that it allows some of the most creativity in generating win-win agreements. There are many more reasons in which I will expound on in the.

By the way…Yes, I’ve heard and do monitor all the media hype regarding the real estate market. Remember the media’s main objective is to sell stories, advertising and subscriptions (They are running a business. No sales = no revenue = no business.) The reporters reporting are not always digging far enough to unveil the complete story. Chances are if they did it may not be as negative and doom and gloom as it is portrayed, thus it would not be news that sells.

Yes, there has been an overall reduction in the real estate market and yes there is an affect on the economy. And there are still local areas in each general market area that are holding their value or appreciating. Realize these are the areas where you should begin your due diligence for real estate investments, but we’ll get to that at another time.

Real estate is everywhere so you can easily see with your own eyes what is going on in the market place. Better yet there are always several REALTORS^® available to speak with about the numbers in your local market. If you are looking for investments search for a real estate professional that also owns real estate investments.

As in any industry the people who know and understand what is really happening in that industry or market will almost always profit, whether that market is going up or down. I know of many investors who are buying, as prices are great to create some positive cash flow deals. Homeowners, banks and most anyone involved in the real estate industry are now ready to consider the not so ordinary transactions (short-sales, owner financing, carry backs, options, etc.). Obviously not every market in the U.S. is a great place to invest right now. But now is the time to be searching, and understanding your market.

In the event that your market is totally horrible you may consider other higher appreciating markets. (realmarketmastery.com)

When you are buying real estate for investment purposes (Most everyone who is buying for personal or investment reasons, is also concerned with the appreciation component of their purchase.), you should consider working with a real estate professional that is or has invested in real estate.

Think for a minute… would you buy stocks or ask a stock broker’s advice if they have never invested in a stock? Would you take financial advice from a friend who only has a net worth of $100. I think you get the point.

Action Required

In sharing the information with you that I think may be useful or beneficial you may begin to develop thoughts, ideas and curiosity which will generate some sort of action. If you’re like most intelligent people, the action generated leads to the researching of the information to determine how it can be applied to benefit you and your current situation to create a higher quality of life.

Realize that although I may present an idea, concept or strategy that you may benefit from, ultimately you are responsible for doing your own due diligence and research to determine if it is right for your particular situation (see the blog/website Terms of Use).

Covert Assets

Objective: To educate, provoke thoughts, and create curiosity to maximally utilize your available resources (assets) in accelerating your financial growth.

The information here is not about undercover CIA operatives or spies scattered through out the world.
It’s not about the subjects portrayed in movies like James Bond, Mission Impossible, or Jason Borne.  Nope, none of the high security clearance, top secret type of covert hush-hush information.

Although we’ll discuss many uncommon strategies, and opportunities that over time may be able to generate the kind of funding to allow you to operate like a undercover operative, obtaining the best high tech gadgets, the most exotic cars and travel around the world on adventures of your choice.

These covert strategies, “If you decide to accept the mission,” have the potential to fund your children’s college education, provide financial support for an elderly loved one, help you pay off your house within a short period of time, generate passive monthly income and fund a smoke’n retirement that generates money each and every month while maintaining the principle.

It’s time to live the lifestyle you have always intended to live.  You know… the life that works for you, instead of you working for it.