THE REAL ESTATE FAD IS OVER! If you've been dreaming of ?Flipping' real estate because you've heard of people making a fortune flipping houses - YOU ARE TOO LATE! The real estate fad has come and gone!
Like all fads, the ?Flipping Real Estate Fad' lasted only a short period of time. This is not the first get rich quick fad to occur and it certainly won't be the last. Whether it's flipping real estate, day trading stocks, breeding ostrich eggs, or trading tulips, our history is replete with examples of get rich quick fads that took the world by storm and ended badly for nearly everyone.
One of the first recorded examples of a get rich quick fad was the Tulip Craze that occurred in the Netherlands in the 1600's. Tulips had just recently been imported from Turkey into the Netherlands. Many of the richest Dutch citizens started collecting the flowers and proudly displayed them in their homes. As time went by, the middle class took notice that this flower was so prized by the rich, and also started collecting the flowers. Before long, everyone wanted tulips and tulip bulbs and the prices started going up. As the prices rose, people started trading tulip bulbs as if they were a commodity or a stock. Someone would hear of a neighbor that had traded a tulip bulb and made a big profit. The neighbor also wanted to cash in on this new venture. Before long, it seemed like everyone was trading tulip bulbs. It got so ridiculous, that entire estates and life-savings were traded for a single tulip bulb!
At some point, prices became so ridiculously high that a few smart investors realized that the tulip fad couldn't continue forever. These 'smart money' investors sold their entire stock of tulip bulbs and locked in their massive profits. Others followed suit and soon it became apparent that the market for the bulbs had disappeared. Suddenly, everyone wanted to sell their tulip bulbs and there were no buyers. In no time, panic selling caused prices to drop so far and so many people lost money that the country's economy was propelled into a depression. So ended one of the world's first recorded Get Rich Quick Fads.
Get Rich Quick Fads have continued to occur from the time of the great tulip craze to the present. The technology bubble of the late 1990's was a prime example of one of these fads. The price of internet and technology stocks soared. Many of these inflated stocks were of companies that had no way to make money. Many thought that the price of technology stocks would continue to go up forever, because 'this time things are different?. RIDICULOUS! The value of a company who can't make money is ZERO! People were blinded by greed and simply didn't realize this reality until the crash occurred.
The economy of the United States took a double hit in the first two years of the new millennium. First, the tech bubble burst taking the entire stock market down with it. Then, a small group of terrorists brought our country's economy to its knees with the attack on the twin towers of the world trade center. In response, the Fed lowered interest rates to a 40 year low. This lowering of interest rates along with the introduction of relaxed lending practices kept our country's economy strong and opened up the possibility of home ownership (and real estate investment) to more Americans than ever before.
The increased demand for real estate also increased the demand for all real estate services. Homebuilders, realtors, rehabbers, appraisers, lenders, and everyone else in any real estate related business prospered. The demand for houses exceeded the supply and many smart investors began to speculate on houses. This was the birth of the house flipping craze! As the smart money began to make money 'flipping?, the middle class took notice and also started flipping. Before long, it seemed like everyone was flipping property for a nice profit. Demand for houses increased and it seemed like there was no limit to house prices. New investors entering the flipping business drove up the demand for houses, which increased the prices. The more prices went up, the more new investors entered the market and bid up prices even higher. It became a vicious cycle. It got so ridiculous that new 'investors' would camp out in hot markets just for the chance to bid on pre-construction projects.
This vicious cycle continued through late 2005, at which time the real estate bubble started to deflate. The smart money realized that prices had gotten ridiculously high and that the end was near. These 'smart money' investors started selling their real estate portfolios
The real estate fad is over. Demand has dried up and the number of houses on the market is increasing. In many areas, prices have already started down and this trend will surely increase as time goes by. The home buyers and 'investors' who used interest-only loans, negative amortization loans, and adjustable rate loans over the past few years will soon have payments that are drastically higher, when their promotional rates expire. Millions of these people will not be able to afford the higher payments and will lose their homes to foreclosure. All of these millions of additional houses on the market will further depress prices and prices will likely stay low for many years to come. The flipping fad is ending as suddenly as it began. With the lack of retail buyers, there simply isn't a demand for flipped houses. Millions of the new 'investors' that started flipping during the recent fad will go out of business, losing a lot of money.
Why have I gone to the trouble to write such a gloomy report? Is this story over? NO! The TRUTH is that there always has been and always will be big money to be made in real estate. However, the money to be made isn't in flipping or in the latest fad!
For me and others like me, the real estate bust will be very profitable. You see, I am not a ?Flipper' and I was not caught up in the recent real estate fad. I am in the rental property BUSINESS and I offer a product that people ALWAYS NEED?..a place to live!
There are MILLIONS of millionaires in the United States?...seven million millionaires to be exact. Many of those millionaires made their money owning rental properties. Rental properties are needed in all markets because people need a place to live. In fact, as the real estate market gets worse, more people will become renters.
Just today, I received a call from a woman who was looking for a house to rent. The reason that they needed a place to rent is that their house had been foreclosed upon. She explained that their mortgage payment started out at $600 per month with one of those gimmick introductory rate loans. Recently, their loan payment had gone up to nearly $1,100 per month and they simply could not afford it. They got behind on payments and the bank is foreclosing on them. Now, they will become my renters.
Why are rentals such a great way to make money, grow rich, build wealth, and retire early? The answer lies in the 5 different ways that we can make money with rentals, often without using any of our own money. The 5 ways to make money with rentals are:
1. Equity at closing!
Rental Properties MUST be purchased at a discount. It is almost impossible to buy a rental property at retail price and then rent it for a profit. The difference between what we pay for the property and the market value of the property is our equity, and can amount to tens of thousands of dollars for each rental property!
2. Cash flow
With rentals, we receive rent from our tenants each month and then pay our operating expenses and the mortgage. The amount of money left over is our cash flow. This is money you can spend for living expenses, to buy a car, for your mortgage payment, or anything else that you like. Cash flow is the lifeblood of every business.
3. Pay Down of Principal
One of the exciting things about rentals is that the tenant pays the mortgage payment and all expenses for us. Over the term of the loan, the mortgage will be paid off and we'll own the house free and clear!
4. Appreciation
Historically, houses appreciate at 3% to 5% per year. Think of this as the icing on the cake.
Let's consider a $50,000 rental property. Even if it only appreciates 3% per year, that is another $1,500 in equity that we pick up each year! You'll note that we didn't have to do anything to get this equity. All we had to do was continue to own the property!
5. Tax Depreciation
As if the previous four ways of making money weren't enough, the government has seen fit to allow us to depreciate our rental property. This can be a significant savings on our taxes and is the same as making additional money on your property. As of the writing of this book, properties are depreciated over a 27 1/2 year period. This yearly depreciation can be thousands of dollars per year on a single rental property.
ARE YOU GETTING EXCITED YET?
By reading this article, you have already taken the first step toward improving your financial situation. Where do you want to be at the end of this year? Are you satisfied with your current financial situation? Are you happy working for someone else? Are you in a good position for retirement? Do you dream of the freedom of working for yourself? Would you like to make a significant contribution to your church or favorite charity?
If you do nothing to improve your situation, you will probably end this year in the same position that you ended last year. IF THIS YEAR IS TO BE THE YEAR THAT YOU CHANGE YOUR LIFE, YOU MUST DO SOMETHING DIFFERENT! If you have decided that operating a rental property business might be YOUR PATH TO FREEDOM, then you need to get started. Start with learning all you can about the rental property business and develop a plan to get you from your current position to your desired goal.
