Learn about cutting edge investment strategies using new tax laws and aimed at building a successful real estate investment portfolio. Meeting location in Oakbrook area will be announced soon.
http://www.meetup.com/Tax-Free-Real-Estate-Investing/
Saturday, December 18, 2010
Friday, December 17, 2010
Have A Look At December 2010 Housing Trends
DECEMBER-2010 Newsletter Housing Trends eNewsletter
Welcome to the most current Housing Trends eNewsletter. This eNewsletter is specially designed for you, with national and local housing information that you may find useful whether you’re in the market for a home, thinking about selling your home, or just interested in homeowner issues in general.
The Housing Trends eNewsletter contains the latest information from the National Association of REALTORS®, the U.S. Census Bureau and Realtor.org reports, videos, key market indicators and real estate sales statistics, a video message by a nationally recognized economist, maps, mortgage rates and calculators, consumer articles, plus local neighborhood information and more.
Please click here to view the DECEMBER-2010 Newsletter Housing Trends eNewsletter.
If you are interested in determining the value of your home, click the Home Evaluator link for a free evaluation report.
Tuesday, October 19, 2010
Tuesday, October 12, 2010
Sunday, October 10, 2010
Saturday, October 9, 2010
Monday, September 27, 2010
Downers Grove Tax Appeals Now Open
The Downers Grove Tax Assessors's Office is open for 2010 property assessment appeals. You have until Oct. 18 to either appeal your 2010 assessment or file an appeal with the Dupage County Tax Appeal Board.
For more information visit:
www.dupagetaxappeals.com
For more information visit:
www.dupagetaxappeals.com
Saturday, September 25, 2010
Thursday, September 23, 2010
Tuesday, September 7, 2010
Monday, September 6, 2010
Sunday, September 5, 2010
Saturday, September 4, 2010
Friday, September 3, 2010
Sunday, July 11, 2010
Sunday, July 4, 2010
Credit unraveling the mystery
Check out this SlideShare Presentation:
Credit unraveling the mystery
View more presentations from Steve Wagner.
Thursday, July 1, 2010
Whew - Tax Credit Deadline Extended
Congress finally passed an extension of the Home Buyers Tax Credit deadline for qualifying contracts entered into before April 30, 2010. This extension will help approximately 118,000 finish getting their home purchases closed and receive the tax credit. The new deadline for closing these sales is Sept. 30, 2010
Thursday, June 24, 2010
Tuesday, June 22, 2010
Extension of Home Buyer Tax Credit Until September? H.R. 4213 Provision Would Extend the Deadline For Closing
The home buyer tax credit is set to expire at the end of this month. In reality, that train has come and gone for many people with the passing of the April 30, 2010 deadline. That was the date by which qualifying buyers had to have their home purchase under contract with a second deadline for the closing of that transaction by June 30, 2010.
Last Wednesday the Senate approved a three-month extension, giving buyers until Sept. 30 to close. However, it is attached to another bill (HR4213 - American Jobs and Closing LoopholesAct of 2010....how's that for a name?) that still has to be passed by the House. The extension would apply only to buyers who met the April 30deadline to have signed purchase contracts in hand.
The current status as of June 17th according to Govtrack.us is: Cloture on the motion to concur in the House amendment to the Senate amendment with an amendment (SA 4369) not invoked in Senate by Yea-Nay Vote. 56 - 40. Record Vote Number: 194. ("Cloture" refers to Senate Rule 22 and is the procedure by which Senate can vote to end a filibuster. In plainspeak Senate voted not to end debate on the bill.
So while the proposed bill is being debated the clock is ticking. This could get mighty interesting depending upon how badly a home buyer was counting on the tax credit for the purchase of their home. Especially for short sales and some new construction it would appear that these deals might not close in time for the current June 30th deadline. So what's a buyer to do? Blow off the deal and forget about home ownership for now or go ahead and hope for the best?
On the one hand, we have to congratulate the architects of the current version over past versions which never considered the idea that it might take some time after a contract was written to actually close (what a novel concept) which caused buyers to quit looking about six to eight week before previous deadlines. On the other hand, it is clear that even the two month post contract deadline is not enough as lenders struggle to deal with the volume of properties and the changing loan underwriting
I'll be watching this one day by day.
Last Wednesday the Senate approved a three-month extension, giving buyers until Sept. 30 to close. However, it is attached to another bill (HR4213 - American Jobs and Closing LoopholesAct of 2010....how's that for a name?) that still has to be passed by the House. The extension would apply only to buyers who met the April 30deadline to have signed purchase contracts in hand.
The current status as of June 17th according to Govtrack.us is: Cloture on the motion to concur in the House amendment to the Senate amendment with an amendment (SA 4369) not invoked in Senate by Yea-Nay Vote. 56 - 40. Record Vote Number: 194. ("Cloture" refers to Senate Rule 22 and is the procedure by which Senate can vote to end a filibuster. In plainspeak Senate voted not to end debate on the bill.
So while the proposed bill is being debated the clock is ticking. This could get mighty interesting depending upon how badly a home buyer was counting on the tax credit for the purchase of their home. Especially for short sales and some new construction it would appear that these deals might not close in time for the current June 30th deadline. So what's a buyer to do? Blow off the deal and forget about home ownership for now or go ahead and hope for the best?
On the one hand, we have to congratulate the architects of the current version over past versions which never considered the idea that it might take some time after a contract was written to actually close (what a novel concept) which caused buyers to quit looking about six to eight week before previous deadlines. On the other hand, it is clear that even the two month post contract deadline is not enough as lenders struggle to deal with the volume of properties and the changing loan underwriting
I'll be watching this one day by day.
Sunday, June 20, 2010
European spa home for sale in hinsdale il
Check out this SlideShare Presentation:
European spa home for sale in hinsdale il
View more presentations from Steve Wagner.
Relocating To Chicago? Pick Hinsdale
Check out this SlideShare Presentation:
Relocating To Chicago? Pick Hinsdale
View more presentations from Steve Wagner.
Stop foreclosure
Check out this SlideShare Presentation:
Stop foreclosure
View more presentations from Steve Wagner.
Friday, June 18, 2010
Capitalization Rates - What Are They, Why Are They Important and Where Are They Heading
If you are planning to be a real estate investor, you need to understand capitalization rates (cap rates), how they are calculated and why they are important. In order to understand cap rates you also need to understand the concept of net operating income (NOI).
If you are a seasoned real estate investor, you already know that the amount of money generated by a property after deduction of expenses and before debt payment is the Net Operating Income. To calculate the cap rate of a property offered for sale, you divide NOI by the Sales Price the result of which is expressed in percent. Here is an example:
NOI = $20,000 and Sales Price = $250,000
$20,000/$250,000 = 8% or an "8 Cap"
You can also calculate what a selling price should be if you want to achieve a certain cap rate and you know the NOI. From the example above:
$20,000/.08 = $250,000
Why is this important? It is a way of looking at relative value in real estate investments (and other alternative investments for that matter). Think of it sort of in the way that you think of the Price/Earnings Ratio of a stock which is the stock's Share Price/Earnings Per Share. This is one way to look at the relative value of stocks (there are a whole bunch of other ways, but that's a different topic).
Say I want to buy an income property and it has the assumptions from above. Let's say there is another property for sale for a 9 cap. The price of that property if it produces the same NOI will be $222,222 ($20,000/.09). So a higher cap means a lower price and a lower cap means a higher price. Until an investor gets used to making this calculation, there is a natural tendency to get the answer backwards so if you are investing in real estate you should practice these calculations until they come naturally.
On to the next reason why this is important. A major advantage of investing in real estate is that debt can be used for leverage. As a real estate investor, I want my cap rate to be above my cost of money. Using the example from above again, if I can finance my real estate purchase for 7% then I have a positive spread. If I have to borrow money at 10%, I am counting mostly on appreciation to make money. This happened a lot in the previous years during the real estate bubble. I can't tell you how many times I had to talk people out of buying properties in Chicago three or four years ago for cap rates of 4.5 when their cost of money was 6.5%.
Where are cap rates heading? My view is that they have turned the corner and are heading down. This seems to be particularly true for multi-family investment properties. During the recession, cap rates for all real estate asset classes headed North (meaning prices dropped) and now that they are turning the corner and starting to go South, the prices are going up. See what I mean about the tendency to get this concept backwards? Cap rates are heading South (going down) so prices are heading North.
If you want to learn more about this or have questions about the concept, feel free to contact me. For more real estate news and tips, visit and subscribe at http://chicagolandrealtor.blogspot.com/
If you are a seasoned real estate investor, you already know that the amount of money generated by a property after deduction of expenses and before debt payment is the Net Operating Income. To calculate the cap rate of a property offered for sale, you divide NOI by the Sales Price the result of which is expressed in percent. Here is an example:
NOI = $20,000 and Sales Price = $250,000
$20,000/$250,000 = 8% or an "8 Cap"
You can also calculate what a selling price should be if you want to achieve a certain cap rate and you know the NOI. From the example above:
$20,000/.08 = $250,000
Why is this important? It is a way of looking at relative value in real estate investments (and other alternative investments for that matter). Think of it sort of in the way that you think of the Price/Earnings Ratio of a stock which is the stock's Share Price/Earnings Per Share. This is one way to look at the relative value of stocks (there are a whole bunch of other ways, but that's a different topic).
Say I want to buy an income property and it has the assumptions from above. Let's say there is another property for sale for a 9 cap. The price of that property if it produces the same NOI will be $222,222 ($20,000/.09). So a higher cap means a lower price and a lower cap means a higher price. Until an investor gets used to making this calculation, there is a natural tendency to get the answer backwards so if you are investing in real estate you should practice these calculations until they come naturally.
On to the next reason why this is important. A major advantage of investing in real estate is that debt can be used for leverage. As a real estate investor, I want my cap rate to be above my cost of money. Using the example from above again, if I can finance my real estate purchase for 7% then I have a positive spread. If I have to borrow money at 10%, I am counting mostly on appreciation to make money. This happened a lot in the previous years during the real estate bubble. I can't tell you how many times I had to talk people out of buying properties in Chicago three or four years ago for cap rates of 4.5 when their cost of money was 6.5%.
Where are cap rates heading? My view is that they have turned the corner and are heading down. This seems to be particularly true for multi-family investment properties. During the recession, cap rates for all real estate asset classes headed North (meaning prices dropped) and now that they are turning the corner and starting to go South, the prices are going up. See what I mean about the tendency to get this concept backwards? Cap rates are heading South (going down) so prices are heading North.
If you want to learn more about this or have questions about the concept, feel free to contact me. For more real estate news and tips, visit and subscribe at http://chicagolandrealtor.blogspot.com/
Saturday, June 12, 2010
Loan Quality Initiative - One More Thing to Keep in Mind if You Are Getting a Mortgage
As of June 1, 2010 Fannie Mae is implementing the Loan Quality Initiative, LQI, to help "capture critical loan data earlier in the process and validating it before, during and immediately after loan delivery." Because Fannie Mae has had to buy back many of the mortgages they have underwritten and then sold in the past, they have implemented the LQI to improve the process for documenting information in order to reduce the risk that they will have to buy back new loans in the future.
What does this mean? If a person is planning to get a mortgage (new or refinance) it means that the lenders will require that the borrower meet guidelines from the time of application through loan closing and even beyond. It is expected to discover if the borrower has or is making other purchases that would affect them qualifying for the mortgage by increasing their debt-to-income ratio.
The lender will be monitoring the borrower's credit up until closing. Since they are not restricted from doing it immediately prior to closing, it could even delay the settlement. In addition to rerunning the credit report, lenders can verify that the borrower is still employed, monies in the bank, direct verifications with existing creditors, occupancy plans, social security numbers and individual taxpayer ID numbers.
So if you are planning to buy remember that you must not buy anything like furniture, cars, appliances or anything else that is financed until the home has closed and you've moved into it.
I understand what a buyer is going through to get a loan approved and closed and by working with me and my trusted mortgage loan officers we’ll make sure that you are in the best possible position to get your loan closed
You can get more real estate news and tips by subscribing to http://chicagolandrealtor.blogspot.com/
What does this mean? If a person is planning to get a mortgage (new or refinance) it means that the lenders will require that the borrower meet guidelines from the time of application through loan closing and even beyond. It is expected to discover if the borrower has or is making other purchases that would affect them qualifying for the mortgage by increasing their debt-to-income ratio.
The lender will be monitoring the borrower's credit up until closing. Since they are not restricted from doing it immediately prior to closing, it could even delay the settlement. In addition to rerunning the credit report, lenders can verify that the borrower is still employed, monies in the bank, direct verifications with existing creditors, occupancy plans, social security numbers and individual taxpayer ID numbers.
So if you are planning to buy remember that you must not buy anything like furniture, cars, appliances or anything else that is financed until the home has closed and you've moved into it.
I understand what a buyer is going through to get a loan approved and closed and by working with me and my trusted mortgage loan officers we’ll make sure that you are in the best possible position to get your loan closed
You can get more real estate news and tips by subscribing to http://chicagolandrealtor.blogspot.com/
Tuesday, June 1, 2010
Stop foreclosure
There are a number of options to prevent home foreclosure. Some of these include loan modifications and short sales. Today w explore the Home Affordable Modification Program (HAMP) which has already assisted over 4 million homeowners to get relief on their mortgage payments. Illinois homeowners make up more than 5% of all permanent mortgage modifications which have been made under the HAMP. The attached presentation outlines the program and shows a process flow and links to information.
Stop foreclosure
View more presentations from Steve Wagner.
Tuesday, May 25, 2010
Sunday, May 23, 2010
Hinsdale Central High School District Distressed Home Sales Significantly Better Than National Average
Distressed single family home sales in the Hinsdale Central High School real estate submarket totaled 42 units or 11.9% of total units sold in the 12 month period from May 2009 to 2010 according to MLS data for the area. The average sale price of foreclosed homes was $734,119 and the median value was $699,000 while short sales (distressed sales in pre-foreclosure) averaged $911,287 and the median value of these was $722,500. The total value of distressed sales in the submarket was $26,357,510 or 8.22% of the total homes sales value of $320,772,885 for the period. The percentage of distressed sales in the United States housing market has been estimated at 29% by first American CoreLogic and for Chicago they have estimated about 34%.
Tuesday, May 11, 2010
What to Do Now That the Home Buyer’s Tax Credit Has Expired?
So now that the first and repeat buyer’s tax credit has come and gone some people who missed out due to timing reasons might be asking themselves what they can do to buy a home. The tax credit, particularly the first time buyer’s tax credit, was a tremendous tool to stimulate housing demand and to make home ownership more affordable for many. However, just because the credit has expired does not mean that there aren’t still tools and strategies which aspiring home owners can take advantage of and which encourage action now.
Here are some ways:
1. Take advantage of the current FHA lending rules for low down payment loans. With qualifying credit and income stability, it is still possible to get an FHA loan and buy a home with as little as 3.5% down. The 3.5% requirement can be satisfied with the borrower using their own cash or receiving a gift from a family member, their employer, labor union, non-profit or government entity. There have been discussions of raising the minimum down payment for FHA to 10% (the current level for lower credit qualifiers which may also increase in the future).
2. Focus on short sales. Much of the under $200,000 housing stock was snapped up by first time home buyers in the run-up to the expiration of the tax credit. Many of these homes were foreclosures and short sales (mortgage owed is greater than the home value). In fact, foreclosures became objects of bidding wars. Short sales require bank approval, but because they are not yet bank-owned the period of time for bank approval is much longer (2 – 3 months or more). It is possible that some first-time buyers established multiple short sale contracts before April 30 2010 in order to satisfy that deadline and once one of the contracts is accepted by the bank, they will drop the others causing these homes to come back on the market (this is my theory right now and I am trying to develop the data which supports this view). In any event, there are still plenty of short sales available and the removal of the tax credit deadlines might make these a more attractive package than a foreclosure.
3. Take advantage of lower Mortgage Insurance premiums. Mortgage insurance premiums currently stand at 2.25% upfront and 0.55% monthly. Until just recently the upfront premium was 1.75% and there is talk of the monthly 0.55% premium rising in the future.
4. Take advantage of low interest rates. There is some debate as to whether home prices have bottomed. Who knows? There is also a lot of discussion about possible rate hikes. This is much clearer to predict. The amount of stimulus money which has been put to work coupled with a gradually improving economy point to rate hikes as a matter of when not if. If a $200,000 house were to drop another $10,000 the savings at a current interest rate of 5.25% would be just under $20,000 over the life of the loan ($10,000 upfront and $9,879 in interest over the loan life. However, if the interest rate for the same $190,000 house increases by just ½% the savings are erased. Which way do you want to bet?
5. Take advantage of 6% closing cost credit for FHA loans before it is reduced to 3%. Currently buyers can receive up to 6% closing cost credit from the seller which can be used to pay for transaction costs, upfront mortgage insurance premiums and interest rate buy-downs.
Capping all of this discussion is the fact that it is currently substantially less expensive to own a home today than it is to rent (see Rent vs. Buy) and there are compelling reasons to act now and buy a home.
Here are some ways:
1. Take advantage of the current FHA lending rules for low down payment loans. With qualifying credit and income stability, it is still possible to get an FHA loan and buy a home with as little as 3.5% down. The 3.5% requirement can be satisfied with the borrower using their own cash or receiving a gift from a family member, their employer, labor union, non-profit or government entity. There have been discussions of raising the minimum down payment for FHA to 10% (the current level for lower credit qualifiers which may also increase in the future).
2. Focus on short sales. Much of the under $200,000 housing stock was snapped up by first time home buyers in the run-up to the expiration of the tax credit. Many of these homes were foreclosures and short sales (mortgage owed is greater than the home value). In fact, foreclosures became objects of bidding wars. Short sales require bank approval, but because they are not yet bank-owned the period of time for bank approval is much longer (2 – 3 months or more). It is possible that some first-time buyers established multiple short sale contracts before April 30 2010 in order to satisfy that deadline and once one of the contracts is accepted by the bank, they will drop the others causing these homes to come back on the market (this is my theory right now and I am trying to develop the data which supports this view). In any event, there are still plenty of short sales available and the removal of the tax credit deadlines might make these a more attractive package than a foreclosure.
3. Take advantage of lower Mortgage Insurance premiums. Mortgage insurance premiums currently stand at 2.25% upfront and 0.55% monthly. Until just recently the upfront premium was 1.75% and there is talk of the monthly 0.55% premium rising in the future.
4. Take advantage of low interest rates. There is some debate as to whether home prices have bottomed. Who knows? There is also a lot of discussion about possible rate hikes. This is much clearer to predict. The amount of stimulus money which has been put to work coupled with a gradually improving economy point to rate hikes as a matter of when not if. If a $200,000 house were to drop another $10,000 the savings at a current interest rate of 5.25% would be just under $20,000 over the life of the loan ($10,000 upfront and $9,879 in interest over the loan life. However, if the interest rate for the same $190,000 house increases by just ½% the savings are erased. Which way do you want to bet?
5. Take advantage of 6% closing cost credit for FHA loans before it is reduced to 3%. Currently buyers can receive up to 6% closing cost credit from the seller which can be used to pay for transaction costs, upfront mortgage insurance premiums and interest rate buy-downs.
Capping all of this discussion is the fact that it is currently substantially less expensive to own a home today than it is to rent (see Rent vs. Buy) and there are compelling reasons to act now and buy a home.
Saturday, May 8, 2010
Thursday, May 6, 2010
Wednesday, May 5, 2010
Property Taxes - 'Tis The Season to Be Wary
Have you received and reviewed your property tax bill recently? Was it a happy event? Not likely. It is especially painful to see your property tax bill grow when property values have been falling over the past few years. Errors or incorrect information in your property tax file can cause you to pay more taxes than necessary so it is important to review your bill for accuracy. Here are some common sources of errors:
(a) An imposition of an incorrect, erroneous or illegal tax rate that resulted in assessing or collecting excessive taxes.
(b) An incorrect designation or description of the use of property or its classification.
(c) Applying the incorrect assessment ratio percentages
(d) a valuation that is based on an error that is exclusively factual in nature or due to a specific legal restriction that affects the subject property and that is objectively verifiable without the exercise of discretion, option or judgment and that is demonstrated by clear and convincing evidence such as:
(e) A mistake in the description of the size, use or ownership of land, improvements or personal property.
(g) Clerical or typographical errors in reporting or entering data that was used directly to establish valuation.
(h) The existence or nonexistence of the property on the valuation date.
(i) Any other objectively verifiable error that does not require the exercise of discretion, opinion or judgment
If you would like to learn more about the property tax appeal process or to have a free property tax evaluation, visit:
www.dupagetaxappeals.com
I won every appeal for my clients last year and was able to save an average of just about $2,000 each (your actual results may vary).
(a) An imposition of an incorrect, erroneous or illegal tax rate that resulted in assessing or collecting excessive taxes.
(b) An incorrect designation or description of the use of property or its classification.
(c) Applying the incorrect assessment ratio percentages
(d) a valuation that is based on an error that is exclusively factual in nature or due to a specific legal restriction that affects the subject property and that is objectively verifiable without the exercise of discretion, option or judgment and that is demonstrated by clear and convincing evidence such as:
(e) A mistake in the description of the size, use or ownership of land, improvements or personal property.
(g) Clerical or typographical errors in reporting or entering data that was used directly to establish valuation.
(h) The existence or nonexistence of the property on the valuation date.
(i) Any other objectively verifiable error that does not require the exercise of discretion, opinion or judgment
If you would like to learn more about the property tax appeal process or to have a free property tax evaluation, visit:
www.dupagetaxappeals.com
I won every appeal for my clients last year and was able to save an average of just about $2,000 each (your actual results may vary).
Saturday, April 17, 2010
Wednesday, March 10, 2010
Why Flipping Properties in a Dropping Market is a Dangerous Idea
Recently I have been contacted by a number of graduates of real estate investment "schools" to assist them with their properties. There are some common themes that I've seen and as a long time (25 years) real estate investor in 3 different countries, these themes break my heart. All too often these new investors are people who have lost their careers to the deep recession and they are being encouraged to tap into their 401Ks and IRAs to invest in real estate as a way to make a new start and maybe to make up for losses suffered in the stock market meltdown. Many would have been better off staying in the stock market given the recent recovery and the fact that they are now suffering the double whammy of having gotten out at the bottom and investing in something they do not understand. In addition to my real estate practice, I am a financial advisor and I am simply not permitted to accept real estate investments totalling more than 10 - 20% of a person's investable assets. Yet I am seeing people who are taking their whole retirement account and investing it speculatively in real estate flipping. This is a dangerous game in a rising market and can turn deadly in a falling market.
Many of these flipper school are teaching people to go out and find deals that they can buy for under market value and then with some fixing up sell for a tidy profit. There are a number of flaws in this approach. First, when foreclosures and short sales were uncommon it might have been possible to find some dislocations or inefficiencies in the marketplace. Now, at least in my Chicago market, these properties are widespread in the MLS and in the end the market is pretty darned efficient. The schools teach their "investors" to try to locate distressed properties off-market and negotiate a better than market price. Apart from the obvious ethical issue, this is way harder to do in today's market. Then the investor has to get the product back out into the market and ideally fool somebody into paying too much or more realistically selling into a falling market. As I said the market is terribly efficient so the whole premise is questionable.
Now let's say the investor finds a property that is below market value and then puts money into it to fix it up since it must be in pretty sad shape to be bought below market. (Is it really below market or just discounted for condition?) In the meantime, the market is falling so what was a discount to the market now is less of a discount and investments have been made, but the property has to be priced to compete in the marketplace with other similar properties which have fallen in value. Our hypothetical investor buys a house for $100,000 and invests $50,000 to get it into shape to sell for $200,000. (use your own numbers, I'm using my market). Meanwhile the price in the marketplace has dropped 10% since the original property was purchased and rehabbed. In order for the original economics to work, I now need a 10% lower original price that I don't have, but more importantly the higher-valued finished product price is lower in the marketplace. If prices have dropped 10%, my new market price is $180,000 and my gross margin has dropped from $50,000 to $30,000. That's 40% drop. My transaction costs of 8 - 10% haven't changed so instead of having a net margin of $30,000, I now have a net margin of $12,000 or 8% not 20% even though the market has "only" dropped 10%. Throw in the fact that my investor has neither experience in buying/selling real estate nor in rehabbing and chances are very good that the 8% is gone too.
These investor schools can issue all the disclaimers they want about the risks, but the pitch is always the same. "Look how easy this is....Anybody can do this.....Look how much money I've made doing this...". Fact is, real estate investing is not a game for amatuers and the fact is also that many of these schools teach people how to rob their retirement funds to do something where few will succeed. Personally I find this reprehensible and it will just give real estate another black eye that it certainly doesn't need.
Real estate investing is a road to long term wealth and has made many people wealthy. Usually this wealth builds over time through the gradual rise in property prices, judicious use of debt leverage, repayment of the loan principal by renters and tax-deferral of capital gains and depreciation recapture through 1031 exchange. This stuff is all too boring to teach and won't appeal to those people who are trying desperately to recover their portfolios with looming retirement and little chance of finding a new job which will replace their old income. Real estate investing has been really good to me, but is has been an accumulation of over 25 years.
Many of these flipper school are teaching people to go out and find deals that they can buy for under market value and then with some fixing up sell for a tidy profit. There are a number of flaws in this approach. First, when foreclosures and short sales were uncommon it might have been possible to find some dislocations or inefficiencies in the marketplace. Now, at least in my Chicago market, these properties are widespread in the MLS and in the end the market is pretty darned efficient. The schools teach their "investors" to try to locate distressed properties off-market and negotiate a better than market price. Apart from the obvious ethical issue, this is way harder to do in today's market. Then the investor has to get the product back out into the market and ideally fool somebody into paying too much or more realistically selling into a falling market. As I said the market is terribly efficient so the whole premise is questionable.
Now let's say the investor finds a property that is below market value and then puts money into it to fix it up since it must be in pretty sad shape to be bought below market. (Is it really below market or just discounted for condition?) In the meantime, the market is falling so what was a discount to the market now is less of a discount and investments have been made, but the property has to be priced to compete in the marketplace with other similar properties which have fallen in value. Our hypothetical investor buys a house for $100,000 and invests $50,000 to get it into shape to sell for $200,000. (use your own numbers, I'm using my market). Meanwhile the price in the marketplace has dropped 10% since the original property was purchased and rehabbed. In order for the original economics to work, I now need a 10% lower original price that I don't have, but more importantly the higher-valued finished product price is lower in the marketplace. If prices have dropped 10%, my new market price is $180,000 and my gross margin has dropped from $50,000 to $30,000. That's 40% drop. My transaction costs of 8 - 10% haven't changed so instead of having a net margin of $30,000, I now have a net margin of $12,000 or 8% not 20% even though the market has "only" dropped 10%. Throw in the fact that my investor has neither experience in buying/selling real estate nor in rehabbing and chances are very good that the 8% is gone too.
These investor schools can issue all the disclaimers they want about the risks, but the pitch is always the same. "Look how easy this is....Anybody can do this.....Look how much money I've made doing this...". Fact is, real estate investing is not a game for amatuers and the fact is also that many of these schools teach people how to rob their retirement funds to do something where few will succeed. Personally I find this reprehensible and it will just give real estate another black eye that it certainly doesn't need.
Real estate investing is a road to long term wealth and has made many people wealthy. Usually this wealth builds over time through the gradual rise in property prices, judicious use of debt leverage, repayment of the loan principal by renters and tax-deferral of capital gains and depreciation recapture through 1031 exchange. This stuff is all too boring to teach and won't appeal to those people who are trying desperately to recover their portfolios with looming retirement and little chance of finding a new job which will replace their old income. Real estate investing has been really good to me, but is has been an accumulation of over 25 years.
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