When people find out I’m a real estate professional, they always ask the same question. “How’s business?” The question comes in many forms but the core question is still the same. Everyone wants to know how current market conditions are going to impact their lives. Unemployment and real estate seem to be the two barometers by which people derived comfort or unease. It seems that the public at large uses macro data to shape the direction in their lives.
Over the recent holidays I was at a party enjoying casual conversation when someone asked me what I did for a living. With Swiss like timing the inevitable question came. My answer was, “great!” A puzzled, almost incredulous, look came over this person’s face. “What about all the news reports that foreclosures are at all time highs and expected to get worse before things get better?” he asked. I said, “Yes isn’t it great?” At that point he put his drink down, crossed his arms and asked, “What do you mean?” I told him that the current state of our economy has only made things better for my business, and for anyone who chooses to take advantage of it.
“I don’t understand”, said the now bewildered soul, “Unemployment is very high, people are afraid of loosing their jobs and everyone is cutting back. “How can you stand here and tell me that things are great?” He went on to tell me that the company he works for was laying people off, and were it not for his 18 year tenure he too would be joining the ranks of the unemployed. He ended with, “I just don’t have enough money saved to survive without a job for a long period of time. People are hunkering down to weather the storm and you’re telling me that business is great?” He could not accept what he was he was hearing from me. Either I was lying, or there was a cynical plan to defraud him of his woefully inadequate nest egg.
After he laid his fears out on the table, I was more than happy to explain how investing in real estate provides me with security and independence. I told him that the current state of our economy has made things better for my business, and for those who choose to take advantage of it. When done correctly, real estate is one of the few investments that provide a hedge from economic downturns. Conversely, real estate provides profits when the economy is on an upswing. Either way, investing in real estate makes the most sense for the average person looking to secure their future.
A relative small investment using leverage can capture large amounts equity and monthly returns on that investment. We’re buying assets at 50 and 60 cents on the dollar and renting them out to those who can’t buy due to bruised credit or lack of down payment. Putting rental property in service allows investors to take advantage of beneficial laws exclusive to real estate. Real estate makes money for investors six different ways.
- Equity Capture – Equity capture is when you buy an asset for less than it’s worth.
- Forced Appreciation – The ability to change the value of an asset by your own efforts.
- Cash Flow – The rental income should be greater than the monthly expenses.
- Principle Pay Down – Tenants pay down your mortgage a little each month.
- Tax Advantages – The IRS allows us to reduce our earned income tax on cash flow by taking a depreciation deduction and a host of other related expenses against the property.
- Market Appreciation – Real estate tends to double in value every twenty years.
This is why investors are looking to real estate investments for wealth and security. This is why 9 out of 10 millionaires derived their fortunes from real estate. This is why anyone with hopes of a bright and successful future for themselves and their family should also look to investing in real estate as the vehicle to get them there.
Ask anyone who has seen been invested in the stock market over the past twelve years how their portfolio has fared. I suspect the answer will be a resounding “miserably”. There is a reason why the 401K now being called the 201K? Depending on the stock market or a corporate pension is folly. Will you stay employed by the same company you’ve worked for those many years? Due to the massive and ever growing debt, will the government make drastic cuts in social programs that provide the safety net for millions of Americans? As Americans live longer and the cost of living continues to rise, where will people be in the next twenty years? Will they enjoy a life of relative comfort or will they find themselves asking, “What happened?”
The world we live in is far different from that of our parents. Corporations are under tremendous pressure to keep the doors open let alone make profits. Employees are more vulnerable than ever and this fact has people looking to the government for solutions. I believe they’re looking in the wrong places for security. Don’t get me wrong, government has its role and corporations will always need talented employees, however, automation and better worker productivity will continue to shrink workforce numbers.
One has to wonder, was the person asking me questions at the party looking for confirmation that the sky was falling? Did he need to feel comforted by the fact that he was one of the masses being tossed around by economic waves of which they have no control? I can’t be certain of the answer, but some people feel less threatened if they know others are experiencing similar problems. This story is a classic example of how the public has not shifted from the old paradigm of cradle to grave employment.
So what’s a person to do? First we must recognize that we are ultimately responsible for our own lives. We have to provide for ourselves and our families, not look to government or corporations. Until people accept this fact, they will forever be susceptible to forces which they are powerless to control. You must choose a much different course for your life, one that involves investment and wealth strategies through real estate. Once you start experiencing these real and tangible results you’ll wonder why you waited so long to get started.
A wise man once said, “If you always do what you’ve always done, you’ll always get what you’ve always gotten”. What are you doing differently this year?
