Hello People,
If you’ve been watching the headlines in recent weeks, you know that the real estate market is taking a serious beating. Foreclosure are at record highs, lender rebates are increasing, and nationally prices have declined slightly. What all of this suggests, and what we’ve talked about, is perhaps its time to think about using current market conditions to build wealth.
To help give you a sense of how to go about doing this, I wanted to repost some earlier stuff we did from Adriane Berg. Some months ago, I read about an interesting procedure in Adriane Berg’s Your Wealth Building Years for accruing real estate. Basically Berg says some simple steps will help you build real estate wealth*.
They are:
1) Buy an investment property.
2) Hold the thing until you have 20 percent equity (either by mortgage pay down or principal appreciation).
3) Take out a loan against the equity.
4) Invest the loan proceeds in another piece of real estate.
5) The cash flow after taxes from both properties must cover all expenses.
6) Repeat steps 1 through 5 as frequently as it is profitable.
There are a couple of ideas Berg says should be considered when doing this: 1) The importance of a taxes and 2) whether a property manager should be used.
For my part, this seems like a good plan. The major rub is pricing and cash flow. For example, its not sensible to purchase income producing property if rent won’t cover expenses. My wife and I currently have an investment apartment in DC. Now that market conditions are pushing DC property down from its sky-high peaks, the idea of getting another property is becoming increasing attractive. If the credit tightness continues there will be fewer buyers and accordingly the chances of getting a good deal should go up.
In short, Berg’s plan will probably work, but it requires some effort and critical thinking.
Best,
James
Berg, A. (1986) Your Wealth Building Years. pp. 151-152.
Check out Adriane Berg at Powells.com
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