Should You Rent or Buy Right Now?

June 1, 2011 By DanFullmer Leave a Comment

Everyone right now is trying to find the crystal ball to look into, in order to predict the future.  I wish it were that easy.  One of the questions many wish they could have an answered is, whether or not now is the time to buy a home. Some are advising us to sit out the current real estate market and instead rent for the next year or two. In many cases the buy and hold strategy works, in this case I do not agree with this advice and find that much of the reasons provided for the wait and see theory is shear fear. Home ownership means a lot to Americans as a whole, fear should not be a driving factor in our decision making. Now it will have an impact on what we do, but we need to use facts to help us make conservative decisions, in order to minimize mistakes and thus limit our fears.  I also realize that the financial aspects of purchasing a home today is a big concern, but later in this post I will show how we can use financing to your advantage. My challenge is any advice I give because I am in the real estate community will have a tendency to be immediately dismissed as self-serving.  Keep reading and see if you agree with me or not.

For that very reason, I would like to start with introducing you to three articles from three different groups not involved in selling of real estate (click the blue links below to find out more):

Citigroup – Josh Levin, CFA

“When we examine the relationships between mortgage payments and income and mortgage payments and rent, we see that these relationships have also reverted back to or below equilibrium points. In some cases, particularly when mortgage payments are compared to the cost of renting, home prices actually appear cheap.”

JP Morgan – CHRISTINE RICCIARDI

“JPMorgan analysts said ‘the continuation of falling rental vacancies and rising rental demand will make home buying increasingly attractive’, especially as rental prices increase.”

Business School professors Eli Beracha and Ken H. Johnson

“Fundamental drivers now appear to be in place that favors home ownership over renting in the near term future…

The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting…

Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”

Now let’s only use these quotes to open the discussion, now how about we transition the conversation to actually numbers to expand the idea.  Below I have illustrated a classic buy now versus a wait and see example.  All assumptions are described for us, but let me point out the basics again.  You want to buy a $100,000 home now, but you think the market will go down an additional 5% in the next few months.  Which means the home will now cost $95,000.  If you could time the low, that would be great.  In the back of your mind or your crystal ball, you need to find the answer to where will interest rates be later when you are ready to close.  The assumption is that rate will not stay this low, so I have illustrated what happens if the rate does climb.  A simple 1% increase in interest rates makes your payment $32 higher, even if the price did drop 5%.  Second illustration shows, no price drop, but rates do go up causing a $60 higher payment.  And the last illustration shows rates get worse and price actually increases by $5,000.

Above is the numbers for the analytically minded among those reading, the graph below is for the visual learners.  If you buy now and take the lower rate for the next 5 years, you will have paid an additional $1,200 to principal over the rate increasing and price remaining the same.   In all cases buying now, wins!  Now there is a possibility, it is not probably, that rates will go lower and homes will also go down in value.

In Summary

Do research looking at trends, house values will bottom.  No one knows when or if that has already happened.  What we do understand is that trends repeat.  As unemployment number decrease in our local markets, house values will raise, as will the interest rates.  The major reason for this is that if more people are working, more people will have money to spend.  As that supply increases, inflation will occur.  When inflation rises rates will increase.  We are seeing a small increase in inflation now, but it could change quickly.  I would not wait to buy your home on sale, but pay more for it each month.

 

 

 

Filed Under: Buying a Home, Mortgage Education Tagged With: , , ,

What Does a National Housing Survey Tell Us about What American’s Think?

May 23, 2011 By DanFullmer Leave a Comment

Every quarter, Fannie Mae releases a national Housing Survey. This is a survey of the American public on a range of questions concerning the current housing market. It is important to dissect it and pull out some of the findings each time it is released to try to figure out the pulse of the nation.  Below are a few of the recent gems as we see it:

What are the Most Important Reasons to Buy a House?

When homeownership is discussed today, inevitably the financial aspects always come to the front of our minds. Conversely, what the studies tell us is that the four major reasons a person buys a home have nothing to do with money or the investment side of the project. The top four reasons are as follows:

  1. The need for a good place to raise children and provide them with an opportunity for a good education
  2. A structure where you and your family feel safe and together
  3. A sense of your own space for your family to grow up in
  4. A sense of control of what you do with your living space (renovations and updates)

The Home as an Investment – Is it One?

Though most people purchase a home for non-financial reasons, everyone realizes there is a money component to homeownership. Here is what they said in this quarters release:

  • 66% of the general population (and 71% of homeowners) believe that homeownership is a ‘safe’ investment. This is the first time since the studies inception in 2003 that this number increased.
  • 57% believe that homeownership has more potential as an investment than any other traditional asset class.
  • 67% think that now is a good time to buy a home

Rent vs. Buy

We are always interested in the difference people see in renting vs. owning.

  • 65% of renters have aspirations to someday own their own home
  • 74% of renters think that owning is superior to renting (up 6% since the last quarter)
  • 96% of homeowners see homeownership as a positive experience (3% see it as a negative experience) while 82% of renters see renting as a positive experience (16% see it as a negative experience)
  • 92% of homeowners live in a single family residence while 48% of renters live in a multi-unit building

Bottom Line

Our belief in the value of homeownership grows each time this survey is released

Filed Under: Buying a Home, Mortgage Education Tagged With: , , ,

When is the Best Time to Buy Your New Home?

May 17, 2011 By DanFullmer Leave a Comment

Buying a new home be an overwhelming experience.  Outside of gathering financial information, securing a loan and choosing the best location; it has always been a good idea to know when the best time to buy real estate is. Your timing can mean the difference between getting a good deal and potentially over paying. Unlike other purchases, like buying an automobile, many suggest there is usually not a specific time of the year that is better. Instead, a combination of what the economic conditions are like, how the housing market is doing and when the move fits the buyer’s lifestyle and needs are factors that determine the ideal time to buy.

That being said, demand for a home can drive the price up, and when do most people move?  During the late spring and the summer months you will have greater competition for homes on the market.

One of the biggest contributions to the best time to buy a new home is what the interest rates are at the time you need to buy. When monthly payments are less, sometimes drastically less, many additional buyers enter the market in search of a new home.

There are economic situations overall that gives an idea of when  is the best time to buy.  Inflation and cost of living will affect interest rates, as well as the direction of other buyers. It is wise to buy a house as inflation is starting to happen, or  when inflation is low, if possible. Right now many people are too afraid to commit to a home purchase due to financial worries, like potential for a loss of employment or unsure if house prices will go down further.  On the other hand, if inflation is starting to top out or hitting all time highs, it is better to wait before you buy.

Another major indicator is employment; you must work with individuals that understand the local employment markets.  Employment is very much specific to the area you will be looking to buy in.  While national employment numbers will affect the interest rates, the local employment situation will affect the price of homes.  Do you want to buy when the employment number is reporting good news or bad news?  Usually, you will want to buy when the employment data that is coming out is leaning more towards a stabilization period after a big direction to the negative.  Also, if unemployment is still rising you should hold off for awhile yet; but if it as stabilized and interest rates are steady you need to look to pull the trigger.

You hear this all the time; it is a buyer’s or seller’s market, what does that mean? A real estate agent will be knowledgeable on what the market is like in the location you will be looking to buy in. A seller’s market means that homes are selling very quickly because the demand for real estate is high; usually the seller receives multiple offers on their home above asking price. This transfers the power to the seller, which is usually not a good time to buy.  Conversely, in a buyer’s market homes for sale sit on the market longer. As the buyer you have the upper hand since you theoretically have more homes to choose from and can potentially negotiate a lower price.  If a bank is involved in the process as part of a short sale or foreclosure purchase, the price can be negotiated in either a buyer’s or seller’s market.  When shopping for a home, it is better to wait for a buyer’s market if possible, although the “if possible” is the hard part. Large buyer’s markets only come around every so often, and it is usually after a large down-turn in the economy.   If you are a buyer and a seller at the same time, remember you will not be able to get max dollar for your sale and low ball the home you are looking to buy.  Meaning if you are in a buyer’s market and  rates are low, it makes more sense to discount your existing home and buy the new one, rather than keep the asking price higher than you will ever get for it.

Buying a foreclosure can be a great way to save money, if you are willing to wait to find one that fits your needs. Currently, there are many foreclosures on the market so it leads me to the conclusion that there will be one out there for you.  This is not a process to use any random realtor for though (make sure you are doing some research on who is good in your area), but with some leg work and planning, it is a great way to get a good deal.

Seasons can also determine how many homes for sale are on the market. Many people like to sell their home during the spring, when the flowers are starting to pop up again and the weather becomes warmer. Moving during the spring time is much easier than dealing with winter’s unpleasant elements. Also, many people like to plan their move with spring vacations or the end of their children’s school year. Looking at homes for sale in the spring means there will be more to choose from; however, it also might mean your real estate agent will be busier. Moving companies are also aware that demand during the spring months is the highest, so they will charge more. Contrarily, most people prefer not to move during the holidays, so there will be fewer homes on the market.  There are also less people looking to buy, so a buyer might find a good deal if a seller is motivated to sell.

Convenience is another important factor in determining the right time to purchase a home. As a buyer recognize that families with children like to buy near the end of the school year or during the summer months to avoid changing school districts in the middle of the school year, which is usually difficult for kids.  If a new job is causing the move, sometimes it is inevitable. If you are looking to sell your house as well as buy another you might need to make the sale contingent on selling your home, unless you can afford to pay two mortgage payments.

Knowing the best time to buy will mean getting the most out of your investment and removing hassles from the process. Naturally, there are forces that mean moving is inevitable. A real estate agent can help prepare and inform you of when the best time to buy is that also fits into the your lifestyle and financial needs.  Remember as a buyer you do not pay a realtor for their service out of your pocket, so do not hesitate to ask for their help.

Filed Under: Buying a Home, Mortgage Education Tagged With: , , , , ,

Do You Ever Get the Feeling You’re Being Watched?

May 8, 2011 By admin Leave a Comment

You are.

Three credit bureaus are monitoring your every move, and delivering what can best be described as a report card of how you handle your finances as an adult. Of course, we’re talking about credit scores…that little 3-digit number that many don’t think about, but can have a profound affect on your disposable income.

Your credit scores affect everything in your life. Not only your interest rates, but where you live, how much you pay for insurance, and even whether you get that great job or promotion. It takes years to build great credit, and literally days to destroy it. But that’s not the problem.

70% of all Credit Reports Contain Errors

That’s the problem. Why would companies whose sole function is to monitor and report credit ratings be so lackadaisical with their reporting? Because they make more money that way.

Credit Bureaus Profit from Errors

Imagine this. You take pretty good care of your credit, you pay your bills on time and have a respectable 660 credit score; which would probably be a 720 if your name wasn’t misspelled twice and your bank hadn’t erroneously reported that late payment on your credit card. Still, 660 is pretty good, so you don’t say anything.

Now it’s time to buy a car. You head down to the local dealership and pick out a beauty, then head off to get financing. The car dealer looks at your credit, and pays the credit bureaus for doing so, then sends your file to 5 different lenders to secure financing. No big deal, it doesn’t effect your credit score because it’s a single transaction.

However, each of those lenders also orders your credit report and pay the credit bureaus as well. So in this single transaction, the credit bureaus received payment for your 660 credit score 6 times. What you didn’t realize is that if your credit score had been 720, as it should have been, the car dealer would have had automatic financing for you at a variety of lenders without having to run any additional credit reports.

That’s Why They Make Mistakes

If you could make a simple clerical error and boost your income 500%, would you? Don’t lie. The credit bureaus feel the same way, it’s a pretty good deal if you can get it. That’s why they make it so hard to correct errors on your credit report, and they force most people to give up because it’s too time consuming or they don’t understand the process.

That’s Why We’re Here

We’ve partnered with our friends over at Credit Rating University to provide some solutions. When you are looking to repair your credit rating, you have two main options; do it yourself or hire a professional. Let’s see which is best for you…click here to begin!

Filed Under: Credit Reports

Determining how large of a mortgage you can afford is generally the first step for budding home buyers.

March 17, 2011 By DanFullmer Leave a Comment

Follow these simple rules to make sure you don’t get in over your head.

Being aware of how much mortgage you can afford is an essential step for all soon to be home buyers.  By understanding your lending qualifications, you will avoid stretching your finances and ensure that you purchase a home you can afford.  There are many professionals that can offer guidance in this area, though doing your own due diligence and calculations is a vital part of the process.  After all, you know more than anyone about your personal budget and income limitations; as well as what level of disposable income you are comfortable with.  Let’s take a look at a few good rules to remember when calculating how much mortgage you can afford.

At one time, a good rule of thumb when deciding how much mortgage you can afford is that you should not borrow more than one and one-half times your gross annual income to purchase a home.  However, recent surveys conducted by real estate experts and financial advisers have suggested that you can realistically buy a home which costs two and one-half times your gross annual income.

The most important thing to consider isn’t the sale price of the home, but the resulting monthly payment; considering that this is the amount you will have to write a check for every month.  Most mortgage rules suggest that your monthly payment should always be less than twenty-eight percent of your gross monthly income.  Before making any real estate investment, you must always consider the costs for property taxes and homeowner’s insurance.  Property tax and insurance amounts will vary depending on which home you purchase, and it is vital to include these costs in your total expenses.  You must conduct a thorough review of the expenses involved for each specific property you are considering.  Always make sure you are fully aware of your total combined monthly payment before you make an offer on any property.

There are plenty of mortgage brokers and real estate agents to choose from, and it is important to work with reputed ones when you are ready to look at properties and get pre-qualified for a mortgage.  These tips on how much mortgage you can afford are very useful; however you must be aware that home buying is not a simple process.  There are still many other factors to consider.

When borrowing a large sum of money and investing in a home, it is critical to consider consistency of income.  Your lender will expect you to pay a stipulated amount for your principle, interest, property tax and insurance each month; therefore your salary or business income must be consistent enough to meet that obligation.  Unless your income is permanent, it is not wise to be in too much of a hurry to buy a home.

Monthly expenses in today’s economy are seldom constant, and with rising inflation they are bound to increase over time.  Taking this into account, along with fluctuations in income, is a very good idea.  By looking at these factors as well, you will be able to budget for other expenses and make sure that your mortgage payments continue to be affordable.  You certainly want to avoid your mortgage payment putting you into a tight financial position, even if this means holding off on a purchase until your income is better able to handle the home of your dreams.

 

Filed Under: Buying a Home, Mortgage Education Tagged With: , , ,

Debt Repayment Plan – Debt Snowball Illustrated

March 10, 2011 By DanFullmer Leave a Comment

Getting out of debt is becoming the new cool thing to do, so how do you do it the right way?  The main objective is to build energy like a snowball rolling down a mountain.  Each time the ball rolls it picks up new snow flakes and it get larger and large until it grows large enough to over take any object.  Money can be like that for you, you can save money and the interest builds on itself, your debts unfortunately grow faster in interest as it compounds against you.

In the money game, you want to build excitement and momentum through a series of small victories; this happens by paying off the smallest debt first and then applying the payment savings to the next smallest debt.  Now many will say in the game another strategy is to pay off the highest interest rate first, I have run the numbers on hundreds of cases and the debt free moment is almost the same in either case.  Sadly, there is one thing that will happen if you tackle the higher interest rate first, most often you will quit playing the game.  If you do not see your debt load decreasing you will not stay excited and focused.  Once the game is started and the ball is rolling the force becomes very powerful against the debt and builds future wealth.

Now some people are discouraged right now because they are upside down in their homes, let me show you how it still works for people who are upside down.  The mortgage shown in the illustration below is for a home worth $165,000, but has an existing loan of $200,000.

Playing the Game:

Step 1 – Write down all your debt(s)

CreditorBalanceInterest RatePayment
Credit Card #1$5,10012.0%$50
Credit Card #2$5,60013.5%$120
Auto Loan #1$3,8008.0%$270
Auto Loan #2$17,0007.0%$450
Student Loan$5004.0%$50
Mortgage$200,0007.0%$1,520
Totals$231,300$2,460

Step 2 – Organize your debts from the smallest to the highest balance

CreditorBalanceInterest RatePayment
Student Loan$5004.0%$50
Auto Loan #1$3,8008.0%$270
Credit Card #1$5,10012.0%$50
Credit Card #2$5,60013.5%$120
Auto Loan #2$17,0007.0%$450
Mortgage$200,0007.0%$1,520

Step 3 – Make a list of any extra resources you have to generate some cash
Yard Sale, convert credit card miles to cash…. Use the extra money you generate as part of your first payment to the smallest balance.

Step 4 – Begin to apply the payments to the debt
If we use the numbers above and project out, in 4 years the remaining debt is $172,438, which is part of the remaining balance on the mortgage.  If we project out 11 years 7 months we are debt free.  So we turned the current upside down home, into a home that is owned free and clear without adding additional money each month from your current debt load.

Now you will have $2,460 in monthly cash flow that you were used to spending, there is no need to buy a bunch of toys and blow that money each month.  What if you saved the money at a 5% grow rate for the remaining 18 years of a 30 year plan?  $849,499.55 would be the amount that you would add to your retirement.

There is no need to hang your head if you are in debt and are upside down in your home, if you have a job and can continue to make the payments.   I can show you there is light at the end of the tunnel, email me anytime dan@affinitymortgage.com

Filed Under: Mortgage Education Tagged With: , , ,

Counseling: A Very Important Step in the Reverse Mortgage Process

February 21, 2011 By DanFullmer Leave a Comment

Taking out a reverse mortgage is a major decision, since you are putting the equity of your primary residence at stake. One of the most important things you need to do is to attend a reverse mortgage counseling seminar. This seminar is organized to enlighten the prospective borrower’s understanding about reverse mortgages. Similar to most financial transactions, a reverse mortgage is hounded by myths and uneducated opinion that affect its popularity. Technically, the seminar should discuss all the options available to you, however, if you are bent on seeking reverse mortgage assistance, they can provide complete information.

The seminar is facilitated by knowledgeable industry experts from an independent third party who can help prospective borrowers make the decision. It can take place over the phone or as a one-on-one discussion.  Aside from the usual inquiries regarding application requirements and financial rates, these experts will also provide explanation regarding the implications and nature of reverse mortgages. These include explanation as to why it does not affect government assistance such as social security and Medicare. Tax consequences will also be thoroughly explained and its impact on the borrower’s eligibility. They will also be able to explain the effects of an existing loan to a reverse mortgage.

The facilitator can also explain to you the procedure of the mortgage contract dissolution. They also have considerable information about the transfer of mortgage from the deceased borrower to the heirs or estates and the participation of the borrower’s spouses. They can also further discuss the nature of a non-recourse loan and its effect on your finances and properties. These things, albeit seldom asked, do play an important role in making the decision that is why the counselor has to volunteer this information. Some people regret their financial decisions only when they discover that some provisions in the contract are not in line with their ideals. At some point, they only realize the essence of a mortgage seminar only when they are faced with situations that seem complicated to assess.

The seminar is held not to singly encourage you to take out a reverse mortgage but to bring forth to you the arrangement’s pros and cons and present you with other options. Their aim is to educate you in managing your finances in order for you not make emotional decisions that you may later regret. They can be straightforward and advise you if a reverse mortgage would suit your needs depending on your current financial status.

The independent third party organizations who handle personal finance seminars can be searched in the roster of Home Equity Conversion Mortgage Housing counselors or from the counseling network. The agencies permitted by the US Department of Housing and Urban Development to provide face to face and over the phone counseling are National Foundation for Credit Counseling, Money Management International, Consumer Credit Counseling Service, and National Council on Aging.

Filed Under: Reverse Mortgages Tagged With: , ,

Velocity of Money – How Does it Impact Mortgage Rates?

February 15, 2011 By DanFullmer Leave a Comment

Recently in the economic news, you’ve probably seen that the market experts and traders have been keeping a close eye on the Commerce Department’s Personal Spending and Personal Income reports. These reports provide insight into the health of our economy, but how does that influence home loan rates? Surprisingly enough, personal spending does influence the interest rates that are available when you purchase or refinance a home.

Why? It has everything to do with what is called the velocity of money. Many are concerned that government keeps pumping money into the system, well nothing happens until that money is spent or lent – or the money passes from one hand to another or one business to another. The speed at which this money passes between parties is called the velocity of money.  The faster it changes hand the higher the velocity.

As you know the job market still very sluggish, consumers aren’t spending as much money these days, and businesses are still reluctant to spend money to make investments in their business. One of those investments is increasing the labor force, or bringing in additional workers.  The present velocity is at very low levels, this is causing inflation to remain low (below the target of that the Fed has of 1% – 2%) and this is part of what is causing home loan rates to remain low. Rates are tied to Mortgage Bonds and inflation is acts like the archenemy of Bonds, so low inflation is good for Bonds and rates. However, should velocity increase, which is bad for rates, it can lead to a mild hint of inflation and cause home loan rates to become worse very quickly. 

Obviously we want better economic news in the near future pointing to a recovery, I am just telling you to remember that there’s an inverse relationship between good economic news and Bonds (home loan rates). Weak economic news normally causes money to flow out of Stocks and into Bonds, which helps Bonds and home loan rates improve. This is why interest rates are as low as they are right now.  Strong economic news, on the other hand, normally has the opposite result.

You have heard this before, but currently home loan rates are at a historically low levels and this situation won’t last forever. That means now is an ideal time to purchase a home or refinance before the velocity of money – and rates – change. This is such a fluid time right now, if you or anyone you know would like to learn more about the current economic situation feel free to contact me.

Filed Under: Mortgage Education Tagged With: , , , , , , ,

Buying a Home – Smart or Scary?

February 9, 2011 By CameronMcCown Leave a Comment

It is important to consider all of the facts when deciding whether to buy a home. Events like the credit crisis, millions of foreclosures across the country, and the housing bubble burst have dissuaded many otherwise-smart investors. You may wonder if buying a home is such a good idea after all. However, the important message to take away from these events is not that buying a home is a bad idea, but that you must be smart about buying your home.

Like every type of market, the housing market unavoidably has its ups and downs. That doesn’t mean buying a home is a bad investment. As a long-term investment, home ownership is still one of the best investments for individual households. Historically, real estate has consistently increased in value, despite shorter periods of depreciation due to local markets and/or national economic conditions. The data shows that homes generally appreciate about 5% per year.

Savings & Investment

Five percent may not seem like a great return on investment, but you have to think about it in the context of the situation. For example, let’s say you put 10% down on a $200,000 house. That’s a $20,000 down payment, or initial investment. At a 5% annual appreciation rate, your $200,000 home would gain $10,000 in value during the first year.

Earning $10,000 on an investment of $20,000 is a whopping 50% return.

For further perspective, let’s say instead of spending that $20,000 on a down payment, you invested it in the stock market. With a 5% return, you would gain only $1,000 in profit.

Tax Benefits

So now you’re saying that a home may have a higher return, but that’s before you consider all of the costs of home ownership, such as taxes, etc. Well, think of it this way: your property taxes as well as the interest on your mortgage are both tax deductible. You can deduct those costs from your income, thus reducing your overall taxable income. In other words, the government is subsidizing your home.

Other Benefits

It’s easy to get carried away with all of the economic reasons for home ownership, but it’s important to remember that not every reason is financial. Have you ever wanted to paint the walls of your apartment? Well when you’re renting, you can’t. Has anything in your apartment ever needed updating, but the landlord refused to do it? When you own a home, you can make the space yours in almost any way you want. And you benefit when you do home improvements, both financially and psychologically.

Homes generally have more space, for storage, living, etc. than other living arrangements. Not to mention that you have space outdoors for barbecuing, pets, and kids. Owning your home carries with it a sense of pride, accomplishment, and even an elevated social status.

So when you’re considering buying a home, consider the broad range of benefits that owning a home can have. And always make sure you have an experienced Mortgage Planner to help make sure you’re getting a home that is right for you, both financially and psychologically.

Filed Under: Buying a Home

Millionaire Real Estate Investing – Is it a Myth or Fact

February 1, 2011 By DanFullmer Leave a Comment

In his book, “The Millionaire Real Estate Investor”, bestselling author Gary Keller states that anyone can become a millionaire by investing in real estate.  It is that simple, just start investing and you will become rich.  Okay, we all know that “get-rich-quick” schemes don’t really work.  Let’s go deeper on what he is saying, though; let’s put a plan behind it and find a road map for success.

Very few real estate investors become rich, and even fewer achieve the level of “millionaire.”  Why is that?  Keller decided to go to the source of the riches, and ask people who had made consistent money over an extended amount of time.  His findings are quite amazing and, more important, telling; as this is what allows us to create a road map to follow.

Of those Keller interviewed over sixty percent had at least fifty rental units, over one million dollars in real estate equity and an average net rental income of over $100,000 per year.  This is the group we want to learn from, not those who are flipping homes desperately trying to make a quick buck.

The book concludes that there are four stages to becoming a Real Estate Millionaire.

Stage 1 – Always Think Like a Millionaire

You may have a burning desire to become a millionaire, and you think real estate is the way to do it.  Well, it certainly can be; but what is your plan?  You need to first start with your own thoughts, you need to have a clear vision of what you want to accomplish.  Once you have the vision, you will need to be ready to work towards that goal; you will need the desire to achieve and the readiness to act.

In order to create the readiness you must first create a foundation of knowledge and surround yourself with trusted advisors.  You may already have the desire, as this is the easier of the two components, but have not taken any action.  This will is usually because of two major obstacles; doubt and fear.  Both of these obstacles can be overcome to a large degree by applying yourself to learn the trade and finding great advisors.

Stage 2 – Look to buy like a Millionaire

The formula to acquire a portfolio of real estate investments is usually broken down into five models:

  • The Net Worth Model
  • The Financial Model
  • The Networking Model
  • The Lead Generation Model
  • The Acquisition Model.

It is best to start by focusing on the flow of money in and out of our lives, or in other words our personal budget.  This will help us to set a baseline for cash flow growth and equity building.  Equity build up will increase your net worth, while cash flow will increase your unearned income.

You will then need to surround yourself with great advisors and people who can help you duplicate your success and increase your endeavors.  This network will be your path to finding great properties and being able to structure the deals to your advantage.  You must also develop a set of criteria to evaluate and define what you are looking for in the real estate market.  One set of criteria will tell you what you’re searching for; the other will tell you what to buy.

I’m sure you’ve heard before that there are three things to look for in real estate; location, location and location.  Let me give you a few more items to consider, however:

  • Type
  • Economic condition,
  • Construction,
  • Features and amenities.

You MUST stay systematic and organized, and always remember that this is just a numbers game.  You do not need to be in a hurry, and keep emotion out of the equation!

Your money will be made on the way into the deal, only go into deals that have a built-in margin for safety.  You will need it!  Buying right is the key to your success; this will ensure your ability to accomplish your goal.

Stage 3 – Control a Million

Now you need to shift your millionaire mind and focus on growing your empire correctly.  Just as in the previous stage you had to buy your properties right, you now have to make sure you are outsourcing work that is appropriate and focusing your efforts on ownership and operational strategies.

There are five principle areas to focus your direct attention, and doing so will allow you to maximize your real estate investment profits.  The five principle areas are:

  • Criteria
  • Terms
  • Network
  • Money
  • And You

You must keep constantly focused while managing your time and activities with deliberate attention to detail.

Up to this point you have been picky about which homes you buy, now you will need to escalate those requirements even more.  Remember to stick with what is working, now is not the time to test new ideas and seek quick riches.  Don’t let greed or the lure of other ventures distract you from what you have done right so far.  Pick your niche and you will be rich.  You must master that niche and once you do, eventually you will own it.

You want to have long term success, you need to have long term success; and long term success hinges on your ability to understand and control the terms of each real estate deal.  These terms are what make the each deal worth doing or not, and in the end these terms control your profits.

Controlling the deal means getting in to the deal for the best price possible, generating maximum cash flow, and getting a maximum return when it is time to sell the property.  If you are able to control the deal you will become a real estate millionaire.  While working through those three steps you will need to align yourself with a good team of advisers; a Mortgage Planner, a Real Estate Agent and potentially a Property Manager.  Great financing will allow you to multiply your holdings faster, while wrong financial moves can be devastating.

Stage 4 – Receive Your Million

The final step in this process is to understand that it is your job to position yourself to receive a million dollars in annual pretax income.  You must set a specific time frame for reaching your goal and it must be in writing; this will give you an idea of how much real estate it will take to produce your desired income goal.

I also highly recommend reading Gary Keller’s Book “The Millionaire Real Estate Investor.”

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