2013 Challenge: Building Wealth
As a real estate investor, 2012 was a very interesting year. I have seen the foreclosure and multi-family markets catch great momentum. To elaborate, the foreclosure market has been very active and full of many different lenders and servicers working very hard to reduce their inventory of REO’s. I have seen lenders invest money in distressed assets to find a buyer that will owner-occupy. I have seen sellers of REO properties seeking an expedited cash closing. I have also seen sellers seeking a certain price, only to be strung along without a successful closing. Regardless, the fact is the number of buyers entering the market to acquire distressed assets has increased and prices are on the rise. Looking back a few years, I see many of the same mistakes people made then beginning to happen again, such as over-paying, as if we didn’t just go through one of the roughest periods of time and we really didn’t learn anything. Although it is concerning, the real estate market is a free market and that liberty everyone should enjoy.
In our free market, there is an increase of investors seeking to build wealth. What is wealth building? If asked, I would reply by saying “Wealth building is the ability to create assets and income that is sustainable and has no debt or cost associated with it that allows for one to live better tomorrow.” In my opinion, most Americans are never able to build wealth due to the high cost of living. Remember, life is expensive. Everything costs money. Nothing is free…Nothing. Building wealth is not easy. Most can’t or won’t do it. Many don’t understand it as they are focused on today. But why is that? Is it too hard? Too much work?
One may argue that he or she is not prepared for the challenge, does not have the knowledge, or current life situation is prohibitive. I personally disagree with all arguments. Building wealth is vital to the future of oneself and is attainable through real estate. Let me explain briefly.
Assume you have an income that allows you to live your current life and provide for you and your family. Assume that you have worked hard to save a small amount of money towards a down payment (as low as 10% today as an non owner-occupant) on one duplex – just one – your baby, your wealth-builder.
Imagine buying that one duplex and planning on working very hard over the next 15-20 years to make sure the apartments are rented. I recommend this duplex be in a class A location yielding class A tenants. Examples include properties near universities, near a popular business district, or are in a location that has a large population of jobs and employees. Imagine owning not only your own home, but your neighbor’s home. In 30 years when both are paid off, you pick up the check on the way to the airport as you depart to retirement land rather than your neighbor getting the proceeds from the sale.
Building wealth is not designed to cost you money. Buying this one duplex, if done right, should not cost you money – your tenants are servicing the debt, you should yield a small profit from the cash flow of the property, plus tax benefits. Make sense? I recommend not using the excess cash flow from the property ever. Create an account with this asset and build in the profits associated with it. Allow this money to be an additional savings account for the property. Just like anything, the property is going to need to be cared for. Though there will be maintenance costs, if you have saved money from the profits of the property, the impact on your life should be negligible.
In the upcoming blogs, I plan on providing a lot more information on how to identify the wealth-building property, how to determine the cash flow, and how to assure success. I challenge all Americans to get in the mindset of building wealth and set your 2013 goals!
Cheers to a wonderful and prosperous 2013!
2013 Challenge: Building Wealth | Scott J Lurie
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