We would attempt to negotiate a deal and unless we were willing to pay full price and expect minimal concessions there was not going to be a deal. The reality was that they knew if we did not buy that house that someone would so they had no motivation to work with us.

Wind forward to today. I was out working with a couple and we wanted to look at new construction. The budget said we could go upto $350K. I went into a subdivision in the area we wanted to be in and the first thing I found was that the price was too high for my clients. The builder had homes in the low to mid $400K range.

As I explained that to the agent on site his first response was “bring them in, we will work something out”. We were more than $70,000 below their lowest price home and he says we can work it out. I believe I could have gotten $100,000 off the price of his listings (about 25%) and we had not even put an offer in writing.

The reality is that people behave as though nothing will change and the way things are now is the way they will always be. My point is that it will NEVER stay the same. The climate of 3 years ago is very different today and today will be very different than 3  years from now. We will be in this buyers market for a while but the new construction builders are not building. Their houses are selling because they are discounted but they are not replacing them. It will take 3 years to get them back in production and I would say we will have a shortage again.

If you are ready to buy then now is the time. Don’t let the drive by media scare  you into thinking this is not true.

Thanks for listening,
Jerry W. Robertson

To review, your home costs you money no matter what. Mortgage, taxes, upkeep, utilities, improvements, etc. are all expenses and if you lose your income you could lose your house. That sounds like a liability to me. A rental property on the other hand is an asset if you do it right.

Buy the house for the right price, in a good rental location and hire a property manager to fill it, take the repair calls and collect the rents and you have an asset if the income is more than the outgo.

You have to buy it for the right price (not too hard in this market) and get it into rentable condition. The better the condition, the higher the rent, the better the tenant. Location is critical though. Good schools, easy access and good neighborhood. Renters want to feel safe too. Smaller lots are better than bigger ones most of the time (less work for the tenant) and the goal is cash flow in this case. If you can get $200 to $300 positive cashflow every month you are doing really well.

You will need some reserves that you have in cash to be able to do repairs or to make improvements and you will be able to comfortably hold onto a property even in bad times. You make money by holding onto the real estate, not when you have to sell it because it is not making money for a brief season.

Call me if you want do discuss this some more but that should be enough to get you thinking. I can help you look at the numbers if you are ready.

It’s a Good Life,
Jerry Robertson

First, let’s look at the stock market. If we just use the S&P 500 Index to keep it simple we can see a couple of trends. Looking short term the Index from 1999 to 2004 actually decreased 6% but if you look longer term from 1980 to 2004 the Index increased over 1000%.

Second, let’s look at the purchase of your home you live in. Technically this is not an investment if you define it as something that creates income. Robert Kiyosaki (author of Rich Dad, Poor Dad) says that you have to look at your assets and liabilities. If you lose your job does the thing you are looking at “feed you” or “eat you”? The house you live in would “eat you”. There is a payment, taxes, insurance and upkeep but it also appreciates so in that regard it does act like an investment. You also get the benefit of living in it and that is a real advantage. Just looking at it as an appreciating asset the value of the property from 1999 to 2004 increased in value 56% and from 1980 to 2004 it increased 247%.

Not bad if you just take the approach of appreciation or increased value. There is one thing to consider though. The idea of leverage is critical to determining true earnings. Leverage is the ability to purchase the investment by borrowing money. In the stock market that is not possible. If you want to buy $100,000 of stocks it costs you $100,000 plus your brokerage fees. The real estate on the other hand can be had for much less. Let’s say that same $100,000 investment can be had for a 10% down payment so you put in $10,000 plus the loan costs. In the comparison your $10,000 has the appreciation of the $100,000 investment so it produces at 10 times the initial investment so even in the long term your original investment of $10,000 increased at a rate of 2,470% and out produced the stock investment by about 2 ½ times.

The other factor you have to consider is risk. It is possible for the stock investment to decline as it did from 1999 to 2004 and could reduce in value significantly. If you are invested in an Index fund the likelihood of a major adjustment is smaller but still possible. We have all seen that in our 401k funds and other investments. If you are invested in individual stocks then you could see everything disappear. In the case of the house over the last 50 years values have steadily increased and while there is much talk about a decline in the market the truth is that in our area we are still seeing an annual appreciation and expect to see that continue since we have not had the huge run ups in sales price that was seen in other more volatile markets.

I will address the possibility of investing in real estate as an asset (something that will feed you) in a later article so check back but the real value in real estate is its intrinsic value. It does not disappear and become worthless over night and by leveraging the investment with responsible borrowing you can see a huge return, much greater than the stock market.

You can find more on this at my blog at www.realestate.HomeShowGA.com if you are interested. Keep in mind this is not to be considered investment advice but is an example of the type of value real estate has. Consult your financial advisor before putting your money on the table.