I’ve been buying income-producing properties for nearly 40 years, but I’ve never sold any of them. I’ve also never experienced a down year. It’s this experience that qualifies me as a real estate investor, of which I’m very proud! I spent 30 years in the advertising and promotion business and conducted my real estate investing on the side before retiring in 1997. This part-time hobby ultimately earned me the title "The Weekend Millionaire."
I give you this bit of my past so you’ll understand why I’m still interested in watching ads and critiquing their effectiveness. The past few nights I’ve awakened and couldn’t get back to sleep right away, so I turned on the television to see what infomercials were running. A few years ago, before the sales market crashed, there were dozens of real estate gurus running around calling themselves investors. Late-night television was filled with infomercials in which one guru after another was touting his or her program on how to get rich quick and quit your job by "investing" in real estate. Many of these programs were so well scripted and acted out that it was difficult to sit through the entire program without a strong urge to pull out your credit card and pick up the phone. What happened? We’re now in the best market I’ve seen in my lifetime to invest in real estate, but the "investment" gurus have conspicuously disappeared. Where have they all gone?
Throughout the years, I’ve watched one guru after another rise as bright as the sun only to burn up like a shooting star as they fell from grace, often the result of legal action or bankruptcy. When the real estate market is red hot, as it was a few years ago, anyone could make money. Even a dead fish can swim downstream. When prices are rising by double digits and buyers are bidding up prices beyond the asking price trying to get in on the gravy train, almost anyone can make money. But, buying properties, fixing them up, and flipping them for a profit is not investing! It’s speculating!
It’s when the market cools that we learn the glaring difference between investing and speculating. The same is true with all types of investments; sound strategies stand the test of time. Granted, some years I have experienced slow growth, but those years usually occurred near the peak of a real estate cycle when there were few deals to be found. It’s hard to find a bargain when the market is swarming with novice buyers, lining up to pay too much, hoping to be able to quit their jobs and retire to the islands with fancy cars, boats, and planes like they see in the infomercials. When will they ever learn?
Investing and speculating are very different; investing is putting time or money into an asset for the purpose of generating an income. Speculating is buying in anticipation of selling at a higher price and making big profits. Betting that rapidly rising prices will assure you a profit is risky speculating, not investing. Bottom line, if you have to sell a property to make a profit, you are not an investor; you’re a speculator.
The hotter a market gets, the greater the lure becomes to jump on the bandwagon. As many are now learning, buying at or near the top of a real estate cycle can be financially devastating. When mortgage funds dry up, prices start to fall, and buyers disappear, many speculators suffer huge losses trying to hang on until the market rebounds.
The past couple of years have caused many people to have a bad feeling about real estate. They will tell you that real estate is in the tank, that it’s no longer a good investment, but when you ask them what’s the best way to build wealth, most of them will still tell you that it’s through real estate investments. For me, the fun part is asking them to define wealth. Try it! You’ll get a hundred different answers.
The problem is that most people confuse income and wealth. They aren’t the same. Wealth is not the big house in which you live. It’s not the expensive car you drive. It’s not the fancy clothes you wear. It’s not your country club membership or your boat or plane. These things may all be indicators that you have a good income, but they don’t mean you are wealthy. Wealth is measured by how long you can maintain your standard of living if you are suddenly no longer able to work and earn.
Wealth is an income stream, a source of passive income that doesn’t require you to trade your time for money. Passive income is interest, dividends, royalties, or other instruments in which you have invested prior earnings or expertise. Income from rental real estate investments also qualifies as passive income and is possibly the best way for average working people to build wealth.
Real estate is known as the world’s greatest wealth builder because it’s the only investment I know of that ordinary working people can purchase using a small amount of their earned income, yet it can produce enough revenue to pay for itself and provide a return on the cash used to leverage the purchases. In the stock market, you can borrow only 50 percent to buy stocks and bonds, but real estate can frequently be financed 100 percent or more and still cash flow. That means that under the right circumstances, you can buy properties with little or no money down, finance the full purchase, and not have to dip into your wages to pay for it.
The biggest problem with the ability to highly leverage real estate is that it attracts speculators who have no intention of holding the properties for the ongoing income they can generate. These speculators acquire real estate to sell to others, which works fine as long as there are buyers willing to pay enough to give them a profit. But, when the market goes cold and buyers aren’t there, it can be disastrous. That’s what we’re seeing happen right now!
Have you ever played the board game Monopoly? If so, you know that the way to win is to buy as many properties as possible, put houses and hotels on them as soon as possible, and then sit back and collect the rents. Gradually, the players who were afraid to take risks and chose not to invest early in the game are forced out because it takes all their money to pay rent to those who did. The interesting thing about playing Monopoly is that the winner is nearly always strapped for cash early in the game. He keeps nearly all of his money invested and often borrows more against properties he already owns in order to continue buying.
Monopoly is about as close to reality as it gets. The winner keeps very little cash early in the game and invests for the future. The winners in life do the same thing. Those who spend everything they make when they’re young on fancy cars, motorcycles, boats, big screen HD televisions, designer clothes, and other things that go down in value rarely have as much over their lifetime as those who invest. While they may initially appear to be more successful, people with this "look-at-me" lifestyle usually find themselves in an increasing struggle to keep up with the lifestyle of those who sacrificed in the beginning and invested for the future.
The losers at Monopoly will sit at the board with a pile of cash and pass up buying opportunities because they don’t want to risk running low on money. As a result, other players buy the properties and eventually force them out of the game. Without investments, their only income is to pass GO and collect $200 (that’s their salary). In real life, properly-leveraged real estate produces an income stream that barely breaks even in the beginning. It is not exciting or stimulating until you look at the impact of owning it over the long term. While initially it may take all the income it can generate to pay expenses and mortgage payments, over time, the rents goes up and the mortgages pay down. This produces an ever-growing cash flow that starts as a trickle and eventually becomes a substantial and growing income stream the longer you own the properties.
The present market crash has forced speculators out of the real estate market, and falling prices are now making it increasingly more attractive for long-term investors. Granted, if you’ve never invested in real estate, it can be scary. When I bought my first investment property, I sat at the closing table with sweaty palms and butterflies in my stomach. Like many first-time investors, I saw the mortgage payment coming from my paycheck. Although I hoped the property would produce enough to make the payments, I wasn’t totally sure.
As I have already mentioned, we are in the best time I’ve seen in my lifetime to invest in real estate. Think of building wealth with real estate as a game, like playing Monopoly for keeps. The more you learn and the longer you play, the better you get and the more comfortable you will become. My co-author, Roger Dawson, and I produced The Weekend Millionaire’s Real Estate Investing Program (Nightingale-Conant) at the peak of the real estate market. At the time it was very difficult to follow our advice and make purchases that would cash flow. There were simply too many greedy people speculating in real estate and pushing prices to levels that made no economic sense. Those who heeded our advice and didn’t get caught up in the euphoria are the ones who are now buying and getting tremendous deals.
What’s amazing is the fact that today there are more deals that meet our investment criteria than we could ever possibly buy. Deals, which were so hard to find a couple of years ago, are begging for buyers today. If you want to build wealth and take advantage of today’s market conditions, The Weekend Millionaire’s Real Estate Investing Program is absolutely the best and safest way for new investors to get started. It contains step-by-step guidance on how to make sensible investments, but more importantly, in addition to teaching you what to do, it also teaches you what not to do.
As a student of The Weekend Millionaire’s Real Estate Investing Program, you can register at www.weekendmillionaire.com to receive email notifications about the date and time of our live online chats. This truly will help enhance the information you receive in the Nightingale-Conant audio product. During these chats, Roger Dawson and I, plus occasional guest experts, will be there live to answer your questions about real estate investing and negotiating, and just in general to give moral support to our students. And, the best part is, it’s totally FREE!
So, if you want to start building wealth, there’s no better time than right now to get started! Happy investing!