Archive for Real Estate

This I Believe – One Young Economist’s Plea

For centuries, families have come to the United States to enjoy the freedoms and opportunities that cannot be found elsewhere in the world.  Our country’s economic, political, and educational foundations are built on the backs of immigrants seeking to improve their quality of life.

It’s time to recognize that families in the U.S. are more similar than they are different.  Muslim families as well as Christian families want to make a decent wage at a job they are appreciated for.  Democrats, Republicans, and Independents all want to be able to buy or rent a nice house in a safe neighborhood and put food on the table.  Gay and straight partners want their children to get a great education with the hopes that they will go on to get a good job, raise their own families, and live happy, healthy, and successful lives.  Men, women, and transgendered individuals are afraid of losing their jobs, losing their houses, and letting down their families.  Citizens as well as undocumented individuals are here in the U.S. because they share these hopes, dreams, and fears.

As human beings, we are all unique.  We look and act different, we have different thoughts and opinions.  But almost everyone that puts together a list of their dream place to live would write the following:

“Meaningful work, affordable housing, fulfilling education, adequate medical care, a clean environment, honest and accountable government, social and cultural renewal, or simple justice”  (Dumbing Us Down, p. 15).

I understand and recognize the importance of having a federal government.  The government is elected by the people to represent the people and to provide needs that are deemed “the public good”.  We need to continue to reduce the inefficiency and waste of the federal government.  But after reading The Price of Civilization by Jeffery Sachs, I was reminded why a strong government is necessary for a developed country.  It would be foolish to insist that we pay no taxes and allow the free market to take on the public goods.

That said, I believe strongly in the power of a free market system.  Capitalism is the single most efficient method to price goods as they are needed, pay individuals that are hard working or creative, and transfer those goods to the place of their greatest need – anywhere in the world.  But the free market system must be balanced with some regulation by the federal government. Without a mixed economy, the world would be filled with Enron’s and BP oil spills.  Capitalism is great at efficiency and providing short term profits, whereas the government helps to keep the free markets from damaging the resources we need to survive and that we will pass on to future generations.

I believe in sound money and taking the country from a fiat currency back to a currency that is more stable and more difficult to reproduce.  I believe that the time has come to take control back from the federal reserve and to end the abuse of the fractional reserve banking system.  An effort should be made to allow for people to use sound banking facilities where they are guaranteed to be able to withdraw their money at any time.  These banks should protect the hard-earned assets of the average citizen.  As a result, U.S. citizens would be encouraged to save for their future and future generations.

I believe that corporations are corporations.  They are not people, and they are a foundational part to what has made the U.S. a great nation.  In order for the free market system to function, corporations must be allowed to fail.  Our country becomes stronger because businesses and individuals can take risk and go bankrupt.  No company should ever be declared “too big to fail”.  Any company that does this imposes a risk to the entire system and should be immediately divided and sold off as smaller companies.

Just because the wealthy may create jobs doesn’t mean they shouldn’t pay their fair share of taxes. I believe that everyone in this country should be thankful for the opportunities that exist here.  The Bill Gates and Warren Buffets of the world should recognize that their money comes from the pockets of working Americans.  Being wealthy is okay and should be encouraged.  Hoarding money and finding loopholes to prevent paying taxes hurts everyone – both the rich and the poor.

In a country as powerful and full of opportunity as the U.S., healthcare should be a basic human right and not a privilege.  A universal healthcare system should be developed that would:

  • Provide basic healthcare insurance for everyone that includes access to a primary care physician, access to preventive care, and basic coverage for most major diseases.
  • Make healthcare costs more clear to the consumer and allow a combination of public and private services to provide these options.
  • Make it cheaper for qualified doctors, nurses, and healthcare professionals to access training.
  • Move to an electronic records system similar to other developed countries
  • Limit litigation and damages that healthcare workers face to keep costs down.

The U.S. has over 3 million people incarcerated.  This is a tremendous burden on the taxpayer.  Anyone that is incarcerated for using or selling marijuana should be released.  Alcohol is a much more dangerous, addictive, and debilitating drug than marijuana.  Prisoners that desperately need psychological help should be provided the treatment they need, as well as the prisoners addicted to drugs, or victims of violence.

The U.S. education system is broken.  But it’s not because there aren’t great teachers.  Teachers need fewer standardized tests and more freedom to use their passion to teach.  Technology will provide the data and allow teachers to identify and reach out to students that are struggling.  Schools should be re-engineered as learning centers for the community, and parents and professionals should all play a role in helping young minds explore the wonders of the world we live in.

If I was president, I would encourage every young person that graduates high school to commit to 2 years of service to the country:  armed forces, Peace Corps or AmeriCorps volunteer work, Teach for America, or other volunteer work.  Our citizens should be happy to “pay it back” and help other Americans live better lives.

I would also reign in the military spending and close many of the military bases that exist around the world.  Limits to Medicare and medicaid would have to be made in order to provide this service to our children and our grandchildren.  We don’t need to pay back the 15 trillion dollars we owe, we just need to pay some of it back so our economy can be strong again and the world can trust that we are fiscally responsible.

I believe that I can be proud of the United States of America again.  I believe that my future children will have clean water to drink, national parks to visit, and a great education provided to them.  I believe that my shaken faith in the United States is only temporary.  I believe that I am a change agent and that I can help this country remain great for future generations.

~Nick, January 28, 2012

How to Make Money Investing in Real Estate

The best feedback I’ve received thus far on Self-Taught Economist is from my article about real estate investing.  Well if that’s what you want, then that’s what you shall have!  This article will continue the conversation and discuss some of the choices investors make when they purchase a property.

Successful investors possess the business acumen to determine if a property will be profitable or not.  To break it down into the very simplest terms, there are two ways to make money from a rental property:

1.)  You receive rent in exchange for someone living in your rental unit.  If you bring in more rent than it costs to pay the mortgage, repairs, utilities, and everything else, you have “positive cashflow”.

2.)  Your property appreciates in value.  This means that you buy your property at a certain price and the market value (what someone else is willing to pay) goes up.  It doesn’t really matter what the market is doing until you decide to sell your property.  If the market value has appreciated (including the cost of selling the property), you might make a profit.

I can hear you thinking, “Easy enough.  Tell me more about how to choose a property based on these two methods to generate income.”

Rent.  I recommend you choose a property that is most likely to bring you consistent (and high!) rental income.  All of the following will bring higher rent:

  • The nicer the neighborhood, the more rent you can charge.  Location is the number one factor when you set the rent.  Basically, you compete with units in your immediate vicinity.
    • If you’re near a college/university, hospital, big company, shopping, you get even more!
    • It’s an uber-bonus (and really unlikely) that you have little or no rental competition. For example, if you are the only apartment building out in the tiny little town builds rocket motors, you get to raise your rents.  This is rare.
  • The nicer the condition (inside and out), the more rent you can charge.  Keep your place shined up!
  • The bigger the unit, the more rent you can charge.  Think of different size families when you buy.  Could a family of four and a dog comfortably fit in a 2 bed, 2 bath condo/apartment?  Not unless they have to…
  • If laundry is available on-site, you can charge higher rent.
  • If utilities are included, you can charge higher rent.
  • If off-street parking is available (even better if it’s covered), you can charge higher rent.
  • Are your lease terms flexible?  You can usually charge higher rent if someone wants  a 6 month lease, and even more if they just want a month-to-month.

Appreciation.  This one’s much more difficult to work with and I would never recommend buying a property solely for the appreciation.  If you are buying a property that has a negative cashflow (which means you’re actually losing money each month), in the hopes that it will appreciate, you are walking a thin line with no safety net below you, my friend.

Now that I’m done with my warning, I do take appreciation into account with regards to two factors:

1.)  I always think about what the market is likely to do over the next ten years.  Currently, I think the market is still going to decline (more foreclosures, more economic issues, watch the sweet video blog I put together), so it’s something to keep in mind when buying a property.  But it doesn’t really effect me until I need to sell.

2.)  I definitely think about where the neighborhood is going to be in ten years.  Is the neighborhood getting better?  Are new shops opening nearby?  Are nicer areas “taking over” and helping reduce crime, clean up trash, and improving the situation?  These are the neighborhoods that I want to invest in – not the declining neighborhoods.

I’m definitely going to explore the idea of property management and investing while I’m in New York.  The CAP rates are good, the depreciated market is encouraging for investors, and there are plenty of tenants eager to move in!

I’ll continue to post as I move through the stages of searching, making offers, closing, and managing a new investment property!

As always, I’d love to see more reader questions and comments!

~Nick, the Self-Taught Economist

 

 

 

Is Now a Good Time to Invest in Real Estate?

A short introduction and discussion about why I would suggest people wait before purchasing real estate.

~Nick, the Self Taught Economist

Alright Fellow Economists – A Homework Assignment

Last night I tossed and turned and eventually laid awake wondering what was wrong with me.  The clock blinked 4:32 AM.

Succumbing to sleeplessness, I switched on the light and started browsing a few of my favorite personal finance blogs.

While reading Wealthrat, I came across an article that mentioned Chris Martenson‘s “Crash Course”, and I clicked on it.

I was immediately drawn to the message that this man preaches.  There are 20 chapters (short videos) that vary between 3 and 20 minutes in length.

I encourage everyone that is interested in learning about economics to watch all twenty segments of this video series (Yeah, I watched all of them because I was wide awake).

There is so much information that I will be returning to write about the topics in future blog posts on SelfTaughtEconomist.com.  You can watch all of the video clips by clicking on the link below:

——Watch Chris Mortenson’s Crash Course——

~Nick, the Self Taught Economist

PS:  Regarding my self-employment situation, today I secured a part-time consulting job with my former employer.  I’ll write more about this in another post, but I’m thrilled to get paid to do my favorite part of the job and it will look great on my resume.

I’ve also had some requests for advice on real estate investing, so an article (or video?!) should be coming up in the next couple of days.  Keep the suggestions coming!

 

My Foray Into Real Estate Investing

How it all started. When I was a junior in college, a buddy of mine recruited me to move to New York and knock on doors selling alarms systems.  It seemed like a good gig.  As long as I hit a low goal, my rent was paid for and I could earn plenty of money to cover the remaining years of school.

The summer turned out to be lucrative.  I was promoted early and because of a strong work ethic and friendly smile, I did better than I had hoped.

Although I made some purchases that I wouldn’t make again (**cough, cough, brand new Subaru**), I also didn’t waste my money like most of my friends on dinners, clothes, or other stuff like George talks about:

 

I returned home at the end of the summer and after finishing my homework each night, I would read real estate investing articles and books – anything I could get my hands on.

I took my time and relied on numbers not emotion. I watched the market and I waited.  I found a few potentials, but let them pass. One evening I found a 3 bedroom, 2.5 bath townhome on the market, near the downtown area, selling well below comparable properties in the area.

I called up a real estate professional that had been in the business for a long time and we did a walk-through the very next day.  I asked his honest advice if there were any red flags about the property, but he shrugged and said it was in great shape.

**Disclaimer:  As Warren Buffett likes to say, “Never ask a barber if you need a haircut.”  Or in other words, most of the time a real estate agent will tell you a property is in great shape because it is in their best interest to do so.  In my case, I knew the agent and had a little more assurance that he would tell me if anything was awry.

I plunked down most of the cash I had made over the summer and after doing my “buyer’s due diligence”, I closed on the property.  Interestingly, right after I submitted my offer and it was accepted, I had another party offer to give me $5,000 to sell them the contract!  (A great sign that even a novice real estate investor could pick up on.)

But my decision was made and I was committed to this property.  I quickly found a great tenant and had him complete all the paperwork.  The short end of the story: it’s been a little over 3 years since I’ve owned the place.  I’m not getting rich off the rents, but I’m making a little bit of money every single month.  I learned all about positive cashflow from the Rich Dad series.

I’ve never had any serious problems.  I screen my tenants with an extensive application and by calling references.  I’m honest with the tenants and I let them know that if they can’t pay rent, I can’t pay the mortgage.  As a result, I’ve never had a problem with late rents.

Most importantly, I’ve learned and I continue to learn. I’ve learned a lot from this little townhome.  I have learned how to manage a budget and factor in costs for repairs, paint, etc.  I’ve also learned to appreciate the right tenants that are willing to do some of the small repairs themselves.  Of course I pay for supplies and sometimes even labor!

But I’ve also learned that being a landlord doesn’t have to be the horrible experience that you read about online.  In fact, I still keep in touch with my old tenants and I’m trying to purchase another property so they can continue renting from me and I can continue being a respectful landlord for them.

Remember, I don’t come from a wealthy family.  I earned every dollar by working long, hot days doing a job that few others could do. I’m no more special than the next guy on the street.  But the principles of investing and entrepreneurship (I’m hoping) will help you and help me “Retire Rich and Retire Young“.

Think about how owning just 3-5 small condos or houses could help protect your savings from inflation.  Even during downturns in the real estate market, as long as my unit is rented, I’m still making positive cashflow.  In this volatile market, positive cashflow is difficult with equities (stocks) or bonds.  It’s an added bonus if the property value increases and I can sell for more than I paid.

Maybe a foray into real estate is in your near future?  Soon I’ll write about timing (when you should or shouldn’t purchase real estate).  My friend Katie asked me about this the other day, and I’ve been working on a respectable answer.

~Nick, the Self Taught Economist

Have you tried investing in real estate?  Why or why not?

 

Picture credit:  Forbes.com