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Get Rich Quick Not the Way to Invest in Residential Real Estate - 2008-04-06 |
I heard it again today on the local consumer advice radio show. Some poor soul had fallen under the spell of a "get rich quick" real estate guru who promised wealth beyond the dreams of avarice in a matter of weeks. The only catch? The listener needed to put up fifteen thousand dollars for the week-long super seminar and the one year personal mentoring from the pitch man.
Fifteen thousand dollars? "Are you kidding?" I shouted at the radio. I was stunned at the cost of the seminar. I thought to myself that I had personally bought houses for less than fifteen thousand dollars, although it was more than a few years ago.
In any case, I was amazed that anyone would consider paying that much money for training in a field where some of the best advice you can get is relatively inexpensive.
And that got me thinking what I would recommend to someone who might call me and ask what steps they could take to learn about investing in residential real estate in a safe manner. Here are some ideas that won't cost you fifteen thousand dollars:
* Read "The Millionaire Next Door" by Tom Stanley and William Danko. About ten bucks.
This book does the a great job of separating the fact from the fiction of financially successful people, and should be required reading for anyone who thinks they might want to invest in anything.
The bottom line of the book is that many people who seem wealthy are actually one paycheck away from financial disaster because their lifestyle consumes more than they are able to earn on a regular basis. In contrast, it points out that there are many Americans who live a modest lifestyle, but have accumulated substantial net worth, even though you may not be able to see it in the car they drive or the clothes they wear.
* Consider becoming licensed as a real estate salesperson. In-class pre-license training, about $350 for 75 hours of training.
You certainly don't need to be licensed to be a successful investor, but the pre-license training does a couple of important things for you. First, you have to learn a lot about the home selling and renting business, and that is directly related to what you will be doing as an investor. And second, you are exposed to a lot of people who are probably already investing in real estate, and they probably know more than you do.
* Read "Creating Wealth" by Robert Allen. About ten bucks.
This book outlines a strategy of creative financing of real estate through win-win real estate transactions. I am not advocating everything he says here, but Allen gives a fairly realistic picture of the real estate world as it was prior to the current downturn.
Why, you ask, would I recommend a book that is not reflective of the current market? Because the current market is about as bad as it can get short of a depression, and I don't think anyone believes we are headed in that direction. In fact, I believe we are already moving toward an improvement in the residential market, and that neither a strong buyer's market nor a strong seller's market is representative of a steady market.
Instead, I believe we are headed for a market in which there is equilibrium between buyers and sellers, and competition keeps prices reasonable. In such a world, builders build more affordable homes and less multi-million dollar mansions. Only time will tell.
* Read "Creating Wealth One House At A Time" by John Schaub, about fifteen bucks.
This book was written by a normal guy from Sarasota who found out that some sellers need to sell quickly for whatever reason and that they sometimes are willing to be flexible on their price or their terms or both. He also found out that good tenants will stay in your rental house a long time if you take good care of them, and he has had remarkable success "one house at a time" over a long period of time.
I have personally followed Mr. Schaub's advice for many years, and have found it to be both practical and do-able. His advice is to keep your day job, then find a way to buy one good, solid rental property a year. Then get it ready and place it into rental service before you do anything else. This way you are digesting what you swallow before you bite off more.
It's good advice.
* Finally, visit some local real estate offices and talk to the local brokers. Ask them if there is anyone in their office who has specialized in investing in rental houses over the years, and if so, could you buy them lunch?
I guarantee that this tactic will generate someone who will want the free lunch, and you can talk with them about their experiences and recommendations of where to go next.
Yes it may cost you the price of lunch for two, but look at it this way: you've already saved almost fifteen thousand dollars.
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In all the years I have been investing in real estate, I have never seen opportunity like this. The moon is in the seventh house and Jupiter is aligned with Mars, and for the next 12 to 18 months, you have a window of opportunity to buy quality investment houses at discounts that were simply unheard of a couple of years back.
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