Real Estate Investing

There is a raging debate with a thousand fingers pointing over whether a housing bubble even exists and who’s to blame. Federal Reserve Gov. Kevin Warsh recently stated the “market turmoil and economic uncertainty” is not caused solely by the subprime lending free-for-all, which makes sense. There must be several contributing factors.

It does seem there was plenty of writing on the wall to slow subprime lending long before the bottom fell out. However, the same applies for investors as well as ignorant consumers who didn’t educate themselves on the homebuying process and allowed themselves to be vulnerable.

Last but not least, as painful as it may be to admit, homebuilders definitely helped make this bed. This is another raging debate, but it cannot be denied that homebuilders contributed to the current housing surplus. Now, home starts are at a 10-year low and the National Association of Home Builders has found its members’ confidence levels at a 16-year low, The Wall Street Journal’s MarketBeat reports.

“And while builders have scaled back dramatically on housing starts and permits for additional homes to the lowest point in more than a decade, soft sales and years of overbuilding in some markets have resulted in a serious glut of new homes for sale on the market, according to government figures.”

This is a personally painful topic because I have a lot of ties to the building industry, but builders do tend to put a relentlessly positive spin on bad times. I recently interviewed one very successful builder who blamed the media for the housing market downturn. If the media would just say one positive thing about the housing market, he said, everything would turn around tomorrow. Fortunately for that builder, he was in Texas, where reality is a little less harsh than other areas of the U.S.

In their defense, builders are far from the only uber-optimists we could point to. That’s why it’s interesting to see then-and-now quotes from housing market experts, analysts and professionals.

October 2002, Alan Greenspan testifying before Congress:

“We’ve looked at the bubble question, and we’ve concluded that it is most unlikely, mainly because, one, we have a very diverse real estate market throughout the country.”

Sept. 16, 2007, Alan Greenspan in a Financial Times interview:

“The decline in house prices ‘is going to be larger than most people expect,’ Alan Greenspan has told the Financial Times, admitting that there was a bubble in the US housing market.”

Sept. 4, 2004, David Lereah, then-chief economist for National Association of Realtors:

“There is no national price bubble. Never has been; never will be.”

Sept. 23, 2007, David Lereah to The New York Times:

“Even the people that were talking about booms busting, my goodness they were talking about it in 2001 and 2002. And they were wrong for four years and they only became right at the end of 2004.”

Dec. 2006, Robert Toll, CEO, Toll Brothers, Inc., largest U.S. luxury homebuilder, in fourth quarter 2006 conference call:

“We don’t think it’s illogical to assume that pent-up [housing] demand is building.”

Sept. 18, 2007, Robert Toll, quoted by Reuters News Service re: the Fed’s decision to cut interest rate by half a percentage point:

“I would have done a quarter instead of a half because it signals we’re in deep doodoo.”

Now if you’ll excuse me, I’m going to go bury my head in the sand. Come get me when it’s over.

This is a great time to be a landlord. There is so much doom and gloom about the subprime mortgage fallout (although lenders are doing what they can to survive) that we shall focus on the positive today. The good news is that landlords are quite fat and happy right now. As foreclosures abound and mortgage lenders circle the wagons, the rental market has surged.

Yes, in most markets, it’s a great time to own rental property — but that doesn’t mean you should run out and buy some cheap property on the shadier fringes of downtown just for the heck of it. Thanks to author Lisa Moren Bromma for taking the time in yesterday’s post to highlight just how much work is involved in landlording.

However, Lisa also had some great tips for how to do it right, for those who have the time and can find the money. She mentioned open houses as a fast-track to finding good renters willing to pay top dollar.

One of the top complaints of landlords has historically been the trouble they must endure with bad-credit renters. Granted, many of those entering the rental market have been foreclosed upon, meaning their credit is tarnished. However, at least landlords have a lot more demand for their product and a plethora of people from which to choose.

Of course, with more demand comes less supply and that means higher prices. Las Vegas is seeing it, where rental rates have gone up nearly $100 since January. Manhattan is seeing it, where second quarter reports showed rental rates nearly nine percent higher than a year earlier.

Congratulations, landlords. Brother, can you spare a dime? If you’ve got the property, hold on to it. Forget flipping. Now more than ever before, love the one you’re with.

Lisa Moren Bromma is a real estate investor of nearly 30 years, a national speaker, business consultant and sits on the board of directors for the National Real Estate Investors Association. She has authored several books, including Real Estate Investing for the Utterly Confused, and most recently, Wise Women Invest in Real Estate. Here, she shares her experience with real estate investing and offers advice for women interested in joining the field:

What gave you courage in the beginning to invest in real estate?

1978 – I bought a 1,900-square-foot house in Pinellas Park, Florida. The real estate broker carried the note for me, because at that time interest rates were at 18 percent. I sold it five years later and it appreciated, so I bought another house, and from there bought more than one. I was a single mom with two kids and I viewed real estate as a savings vehicle.

Is this a viable income option for single women and mothers?

The market is made up a lot more these days of single women buying property. I would say yes, depending on their time constraints. It’s about four things: income, cash flow, appreciation and taxes. There is no cookie cutter, magic wand approach to real estate investing any more. It’s a business and you need to run it as a business and look at it as a diversification of your portfolio. You need to hire a property manager or be willing to do the work, which can be done on the weekends. I hold open houses for my rental properties on Sundays. It’s a very easy way of renting property.

Is it better to flip houses or just rent them?

It’s definitely not better to flip houses. If you’re buying property right now, you’re buying it to hold it. You should not have to pay anywhere near the asking price, and you should be prepared to hold it. I’m talking about markets that have really suffered, like Florida, where builders have overbuilt. I’m not talking about Hot Springs, Arkansas, which is actually doing quite well. It depends on your investment strategy – is this something you want to have in your portfolio long-term or do you want immediate gratification? It’s an individual question. I tend to always go for the long-term.

How do women handle not-so-pretty aspects of renting property like collecting overdue rent and possibly evicting?

That’s a whole course. That’s a whole hour-long conversation. To put it shortly, they have to screen the tenants to put the right tenants in place. Homeowners’ associations are starting to get in on the act, so if you’ve got a tenant who’s not taking care of the property, you as a landlord can be held responsible. You’ve got to oversee your tenants, and that takes work. It’s much more work-intensive than it’s been, which is why some people may opt to go with property managers.

Why do you say women are inherently good property investors?

I believe women listen much better than men. They can empathize with the seller’s motivation, which is especially important right now with the way the market is. I think women do an excellent job in being able to plan. The women I work with seem to be much more proactive in planning. You do need to plan, especially now. It’s vital to your financial life, because otherwise you won’t succeed.

Any special considerations for women investing in real estate?

I would recommend women be very comfortable dealing with certain types of people – bankers, realtors, contractors, insurance agents, CPAs and a property manager if you’re not managing your own. I call it their team of advisors. By putting these people in place, women are saving themselves a whole lot of hassle.

What is your top tip for women getting into property investing?

Women should not be afraid to ask the seller if they would be willing to carry some part of the financing. But the number one tip I would give to women is to know their market, know how many houses are for sale and for rent so they know what they’re up against. They can get a lot of that information from Zillow.com. Secondly, I would tell them to know where they’re going to get the money before they start.