So I get a lot of questions in my email box from my website. Most are legitimate investors with legitimate questions – some are from newer investors with just basic logistical questions – and a few are from people just trying to get started and doing some of their research on my site. One such person – bless his heart – had the courage to ask the following question: (BTW, this is copy/pasted right out of the email, exactly as written!):

“I am trying to get started in the property investment world and came across your site. One thing I do know is nothing worth anything is free, what’s the catch? or (what’s) in it for you?”

I tell you I was laughing so hard, tears were coming down! Of all the people in the world who I’m sure want to know that – no one ever asks! This charming soul just said what was on his mind – to this day I don’t even know his actual name or anything.

And I’m so glad someone finally asked, because there are actually several reasons I do this and I’m happy to tell you what they are – and although agents act like there’s some big secret – there really isn’t! What’s the most obvious reason anyone does anything for a living? Simple! Money!

Investors don’t actually ever pay me anything – no one whips out their checkbook and says “hey Alex, great website, learned a lot, what do I owe you?” Nothing like that. If you like the opportunities I find and present, and you’d like to buy one, I get a referral fee (or other type of fee) from the developer, or whoever is involved. I collect that fee after you close on your new property, have all your questions answered, ducks in a row, and paperwork in order. In a nutshell, ‘you likey, you buy – I get paid’. That having been said, ‘you no likey, you no thinkey you likey me? You no buy’. Everything else on my site IS free.

This is why I spend so much time seeking out GOOD INVESTMENTS. In a competitive market like we’re in, I’m only going to have to search harder to find these opportunities. If I don’t find good ones, people don’t buy. If people don’t buy I don’t collect any referral fees or commission. If I don’t collect any referral fees or commission, I go out of business. And if that happened, I’d have no resources to produce a website or the materials on it. The circle of life investment-specialist-realtor-style.

Okay, so we’ve covered the money part – why else would I do what I do? Well, if you’re familiar with the social security set up, or are a fan of the Kiyosaki “Rich Dad, Poor Dad” books, you already know. There are 75 million baby-boomers who will begin retiring in the next 5 to 10 years. When they do, and they turn 70 1, they are mandated (yes, required!) to begin withdrawing money from their retirement funds on a regular basis (i.e. stocks of some sort). What could happen to the stock market with 75 million people withdrawing? Doesn’t take a genius to figure that one out.

The stock market has the potential to become very unstable. And a vast majority of our middle class society has the majority of – or all of - their retirement funds tied up there. Let’s pick a random number and say 50% of retirees are planning on leaning on their 401K and IRA for retirement money (pretty conservative, I think) which is all in the stock market. And the stock market goes soft, goes into recession or even a crash. The result is that those people can’t retire or can only afford semi-retirement or have to lower their standard of living just to survive. We, as a nation, need to look for other ways to subsidize our retirement or we could be looking at one of the most major national crisis’ in history.

But what if there was a successful movement of people to educate themselves and begin to save in other ways? What if a significant number of people decided they would not rely on the social security system and created their own solution outside of the stock market? How much of a burden would be lifted on the rest of the nation if say, even one in every ten people could successfully do this? The impact would spread like a ripple through the water to their friends, family and other loved ones. The burden would not fall on their children either.

This – to me – worth WAY more than any paycheck.

Many people are mislead and mis-guided by the the news…

Unfortunately for them, all the would-be beginner and speculative investors only hear the gloom and doom reports in the news and are absolutely certain it applies to them. They do not understand that it’s a buyer’s market right now – the real estate market is only troublesome for someone trying to SELL something immediately - and they’re completely stopped by all the media hype (like the quotes you’ve read on my home page).

I have one would-be investor that very faithfully cuts articles out of the paper for me regularly – mails them to me – about the ‘bubble bursting’ and ‘markets crashing’, and how real estate is a baaaaaad investment. And I just don’t think she understands that the article is written by a columnist – someone who earns a meager salary to come up with sensational material – not an investor. If someone does not own investments, is not an investor and/or work closely with investors, how is it they deem themselves qualified to asses them, I wonder?

Anyway, this gal had looked at investing in real estate a bit with her husband to prepare for their retirement. They’re in their late 40’s to early 50’s and she and her husband want to retire in the next 10-15 years. They’ve dabbled in stocks, have a nice little home that’s almost paid off, and a short-termed mortgage in order to get it paid off quickly.

But they do not have enough to retire comfortably… not by a long shot. They too, are somewhat frightened by the ineffective nature of the social security system and worried what their retirement years will look like as a result. They know they want to impact the situation, but are afraid to act.

And unfortunately she spends time and energy actively seeking materials that oppose investing in real estate. And believe me, that material is out there, easy to find! I just don’t have the heart to tell her “What if you put all that time and energy into learning materials that teach you how to invest safely and securely?” (She is already convinced that her home is a great investment – where the information breakdown is, I don’t really know…)

But in the meanwhile I get article after article in the mail – all neatly folded with special passages underlined or highlighted – of all the reasons NOT to invest. Unfortunately for her, I’m quite happy with my investments and retirement plan, so the only purpose of her timely notes I think, is to convince herself.

People often forget that real estate as an investment can – and should – be looked at just like any other investment. Think about what the normal pattern of behaviors is for people saving for retirement with their 401K plan (buying stock in the company they work for).

They set it up, it comes right out of their paycheck before they receive it, usually with a percentage matched by their employer, and they get a regular report of how their investment is growing. ROTH and other IRAs work similarly, except they typically don’t come right out of the paycheck. They have no other benefit then, until you withdraw the funds and collect your earnings.

Looking at real estate through the same perspective – putting a little money in over time and collecting your earnings at the end – provides a beautiful compliment to those other retirement plans. You can even use the same principles as the other investments, like maximizing your investment by ‘Buying Low’ and ‘Selling High”. And real estate on average appreciates as well as, and even much better than the stocks & bonds people invest in.

Real estate however, provides other benefits along the way, that IRAs and 401Ks do not. With real estate investing you can also get tax benefits every year when you deduct your mortgage interest and other expenses incurred. You deduct your mortgage interests and any improvements made. You can also ‘depreciate’ your property, otherwise known as ‘phantom cash flow’. And you can move funds around without being immediately taxed (using a 1031 exchange). These are all things that you cannot do with your 401Ks and IRAs.

Why then, is real estate so frightening for people?

It’s frightening because people have been taught that it is. Their parents or grandparents survived the depression era and TEACH that it’s dangerous to buy a house. And if you do, pay off your mortgage as soon as you can. Maybe even keep some extra cash in a coffee can, just in case!

If no one takes the time to learn anything new, they are stuck in that paradigm and even pass it on to their own children.

For sure, I hear it every day – CNN, the local paper, all the major magazines, local news – everyone talks about how ‘bad the market is’, etc. What they don’t ever say, though, is the market only sucks if you’re SELLING! If you’re a buyer right now – it’s a regular hay-day out there!

You have twice as much inventory to choose from, sellers have to price competitively or be prepared to take a long time to sell, and builders are slashing prices on new and pre-construction just to put dinner on their tables at night. It’s a regular buyers-bonanza!

Here in Minnesota (for example), we currently have about 41,000 homes on the market right now. A balanced market is more like 20,000. We look at the state of the market by measuring its “absorption rate”, that is, the time in which it would take all current inventory to be sold through, if no new homes were listed and sales stayed on par, where they are right now. Here that rate is about 7.7 months currently. And people keep on listing their homes. That being the case, we’re looking at a strong buyers-market for the next year or two at least most likely. And if our normal cycle is around 6-8 years, that’s right on track with our historical norm. But, that sure wouldn’t give our news-casters anything to shout about, would it!?!

I can see it now… “Good evening. I’m Dana Smith with Channel 6 news. Our local real estate market is normal and stable. Also in the news, no one was killed or maimed today. Mike, back to you…” Poor Dana & Mike would have to learn new trade skills and work on their résumé ASAP!

I often get emails from people all over the world who want to know the answer to this question. Unfortunately again, there isn’t one universal answer.

We teach “Buy and Hold”, specifically in the area of residential real estate. There are, however, partners on my team that specialize in Commercial Real Estate and Industrial Real Estate, lots and land, or even mixed use property. The reason I tell you this is that there are different amounts of money involved in these transactions. Commercial, for example, usually requires at least 25% down. With residential real estate there is much more flexibility. You can buy a lot of property for very little initial cost – as low as 0 – 10% of the cost of the unit.

There used to be an abundance of “No Money Down” products available, now (because they were abused) they are a thing of the past. But you can still find 10% or even 5% down mortgage products available AND because the LTV (Loan To Value) is based on the Value (not the actual price), you can sometimes find properties with some equity built in to cover your 5% - 10%, so you only need to come up with closing costs.

Then the remaining amount needed is actually dictated by the lenders and their associated companies and vary significantly by state, because of differing tax laws, etc. Check with your local lender and get a “Good Faith Estimate” from them that will disclose all associated costs.