Housing Prices Continue to Fall

In 2008 I published a book entitled, “Creating Wealth in Declining Real Estate Markets – How to Get Rich in the Best Real Estate Market in 25 Years.” Little did I know the real estate market would, or could, get worse!

All indicators support the argument for continued falling prices for US real estate. Jeff Cox, a CNBC writers confirms this when he writes:

It's official: The housing crisis that began in 2006 and has recently entered a double dip is now worse than the Great Depression. Prices have fallen some 33 percent since the market began its collapse, greater than the 31 percent fall that began in the late 1920s and culminated in the early 1930s, according to Case-Shiller data.

The news comes as the Federal Reserve considers whether the economy has regained enough strength to stand on its own and as unemployment remains at a still-elevated 9.1 percent, throwing into question whether the recovery is real.

"The sharp fall in house prices in the first quarter provided further confirmation that this housing crash has been larger and faster than the one during the Great Depression," Paul Dales, senior economist at Capital Economics in Toronto, wrote in research for clients.
According to Case-Shiller, which provides the most closely followed housing industry data, prices dropped 1.9 percent in the first quarter, a move that the firm interpreted as a clear double dip in prices.

Moreover, Dales said prices likely have not completed their downturn."The only comfort is that the latest monthly data show that towards the end of the first quarter prices started to fall at a more modest rate," he said. "Nonetheless, prices are likely to fall by a further 3 percent this year, resulting in a 5 percent drop over the year as a whole." Prices continue to tumble despite affordability, which by most conventional metrics is near historic highs.

The rate for a 30-year conventional mortgage is around 4.5 percent, just above the historic low of 4.2 percent in October 2010. The ratio measuring mortgage costs to renting is 7 percent below its norm, while the price-to-income ratio is 23 percent below its average, Dale said.

Yet other factors are constraining the market. After the fallout from the subprime debacle, in which millions lost their homes when they defaulted on loans they could not afford, banks changed underwriting standards. More than four in every five mortgages now require a down payment of 20 percent, and credit history standards have tightened. At the same time, foreclosures continue at a brisk pace, pushing more supply onto the market and pressuring prices downward.

Then there is the issue of underwater homeowners—those who owe more than their house is worth—representing another 23 percent of homeowners who cannot leave or are in danger of mortgage default. Indeed, the foreclosure problem is unlikely to get any better with 4.5 million households either three payments late or in foreclosure proceedings. The historical average is 1 million, according to Dales' research.
(http://www.cnbc.com/id/43395857)

So what does this mean for the real estate investor? What does this mean for someone considering a new home purchase? Should you wait?

I suggest that now is the time to be securing real estate – and as much as you can safely handle. In most areas, rents are high, vacancies are low, and there a lot of housing available at bargain basement prices.

Is there is risk? Sure! There is also a risk to if you don’t take action.

The current real estate market is now “worse” than that of the Great Depression. While my heart goes out to those whom have lost their homes, there is opportunity for great rewards for those whom will begin to see, and act, on low prices and low, low financing interest rates.

There will be several millionaires created in this market. Will you be one of them? Or, will you sit on the sidelines and reflect later, I shoulda, woulda, coulda.

5 Steps for First Time Home Buyers

The first time you approach a task is usually the toughest. That's because you are most unfamiliar with a situation the first time you go through it. The same is true for purchasing a home. First time home buyers sometimes have the most trouble with purchasing a home because of their inexperience.

Here are five steps to help first time home buyers purchase their first home successfully.

Step One - Prepare your financial statements
As a first time home buyer should spend at least the six months prior to purchasing a home getting your financial situation in order. This means checking your credit report to make sure that there are no blemishes. Paying off collections and other debts to improve your chance at obtaining and affording a mortgage is also an important step to take as a first time home buyer. It is important that you take a good look at your budget to determine how much you can comfortably afford to spend on a mortgage. It is not a good idea to stretch your money too far.

Step Two - Get pre-approved for a mortgage
Once you have done the work to clean up your credit report and pay off your minor debts, you, as a first time home buyer, should get pre-approved for a mortgage through a lender. When a lender pre-approves you for a mortgage, you are given an estimate of the amount of mortgage you will be approved for based on your credit history, debt, and income. With this pre-approval amount, you have a price range that you can use to shop for a home.

Step Three - Choose your broker/agent carefully
The real estate broker you choose will play a major role in the home shopping process. Not only should you choose an broker that is reputable in the market, you should also make sure that you feel comfortable communicating with the broker. It is helpful to work with an broker that has experienced working with first time home buyers. You don't have to be best friends with your real estate broker but you do need to get along with this person. After all, you will be working together for the next three to six months. Work with a Buyer's Broker.

For a broker to be considered a buyer's broker, an agreement must be made between the buyer and the broker. Without such an agreement, the agent could end up representing the seller in a real estate transaction. In most states we now have what's call "Limited Dual Agency." Under this legal theory a broker can represent both the buyer and the seller. I, for one, don't see how this is good for either the buyer or seller. If you as a buyer want to use a Broker, get a Buyer Broker Agreement signed. You can download one free of charge here.

Step Four - Narrow down your selection
Many first time home buyers have difficulty making a decision about a home to purchase. After several days of home searching you may find yourself with several houses to choose from. This can make it difficult since you've probably forgotten many of the houses since visiting them. You should narrow down your selection of houses as you go. As a matter of fact, it is a good idea to only have three houses in mind at any given time. Weeding out the houses will make the final decision much easier.

Step 5 - If you must settle, do so within reason
Finding your dream house as a first time home buyer might be somewhat of a stretch, especially if you are limited by financial reasons. You might have to lower your expectations slightly to purchase a home. That doesn't mean that you have to choose the house from hell. Instead, make a decision to sacrifice some of the things you desire in a home that can be added later.

Finally ...
Being a first time home buyer can be a rewarding process, especially if you have the knowledge you need to make an informed decision. The next step will be to buy an investment house. There's no better way to create wealth and produce positive income. Did you know that if you have a strategy of buying a home every two years and moving into the new home that you can retire in less than ten years?

Think about that for a second. If you're 25 years old you can retire at the age of 35 on an annual income equal to $100,000 per year, or more, tax free. Sign up for my free Real Estate Investment Newsletter! Email me at DonLoyd@DonLoyd.com

Where’s Your Best Investment?

Where should you put your investment dollars today? Is
real estate a good vehicle or is something else better? Investing
falls into two basic investment types. You can invest in paper or
you can invest in real estate. Paper investments include just
about everything except real estate. Even bullion, rare coins,
and art work could be considered paper investments. I include
them in this category because, unlike real estate that has
regular cash flow, they are assets that have no regular cash
flow. You have to sell them in order to realize any return on
cash investment.

The major difference between investing in real estate or
any paper investment boils down to a fundamental principle:
leverage. Let’s say that you have $50,000 to invest. You can
read books, take a course, search the internet, talk to brokers
and do all the due diligence required to invest in a stock.

You find a stock you like and purchase it. You take
$50,000 and purchase the appropriate number of shares. If the
stock increases 10 percent in value over the course of a year,
you have a return of $5,000. Not a bad investment. You enjoy a
10-percent return on your cash investment.

Here’s the big difference in real estate in very simple
terms. You take that same $50,000 and you can purchase a
property with a value of $250,000. You purchase the property
and put 20 percent down ($50,000). You secure a loan for
$200,000 and find a tenant who will make your payment.

Assuming the same 10-percent appreciation in asset you would
enjoy a return of $25,000. In other words your return on cash
investment would be 50 percent rather than 10 percent.
This is what’s referred to as leverage. Interestingly, you
can actually do much better than 10 percent if you shop wisely.

If you find a motivated seller, you could possibly enjoy more
than a 100-percent return on your cash investment. You can
find a motivated seller who will now sell a $250,000 house for
$200,000. My company regularly makes offers of $.50 on the
dollar—using very little cash in the process. How’s that for
leverage?

Which 10-percent return would rather have? Remember
you can outsource property management and maintenance. I
do. If you build a good “Success Team,” it can help you find
good buys on property and loans with favorable terms. If you
build your team right, you can also learn ways to buy real estate
using little of your own cash making your investments virtually
risk free. On top of all that, you can qualify for some very
favorable tax incentives for investing in real estate, which will
lower your tax burden and you enjoy more spendable cash.

If you want to learn how to invest in real estate using
safe, sound investment strategies, you might want to contact me
and ask about my 10 week Basic Real Estate Investing. Your Road to
Riches?

The Secret to Real Estate Success in an Adjusting Market

One thing that makes real estate so interesting and
profitable is the cyclical nature of it. There are times of boom
where everything in sight explodes as costs rise into the
stratosphere as everyone, it seems, just jumps in hoping to cash
in on the good times while they roll. Then there are times of
price stagnation in which price reductions may occur as the
markets adjusts to the lack of demand. And then, once every
few decades, property is almost worthless in some areas.


We have heard a lot about a coming real estate crash.
The doomsayers are predicting a total collapse of real estate
prices. Are they right? Anything is possible, but probably not!
Too much depends on real estate.


Our ever-increasing population will have to live
somewhere, and the power brokers in Washington, D.C., have
vested interests in helping maintain some semblance of
balance. REI can be risky business. But if history is a good
measure, prices will go up and down—but mostly they will go
up.


Professional real estate investors do well regardless of
what any given market does. They make adjustments when
they identify the tell-tale signs of market changes, which allow
them to thrive even in a bad market. Here are four REI secrets
investors use that will help you stay ahead of the game.


The Hot Markets


Red Hot Markets don’t last forever. There comes a time
when all “good things” come to an end. Hot real estate markets
are no exception. The true professional will purchase property
with an exit strategy that takes into account for the adjusting
market by buying in the best locations that will enable them to
more easily unload the property when the slow down arrives.


Most professionals see the signs of a crumbling market
and start looking for up-and-coming markets and begin the
process of getting out of the hot market. That strategy, while no
guarantee, will make it possible for an investor to buy in the
best areas so they can get out quickly if needed. No one has a
crystal ball; they look at things like employment, employment
opportunities, real estate demand, rental housing availably and
demand, local government, commercial projects, and many
other indicators.


As investment opportunities come available, they start
buying property in other locations that promise appreciation or
profit. Many investors will purchase in several areas so that
they can spread their exposure and gain “safe” returns on
investments. One area might be slow, or slowing, while another
may be experiencing 35-percent, or more, annual appreciation.


The professional will try to get into an area before the
location reaches its peak and then sell before the market goes
down. That enables them to start buying in an area where they
can profit from the next upward trend. Then they may wait for
the former hot market to experience a rush of foreclosures, and
they buy properties at a discount and wait for the market to
rebound.


The Balance of Supply and Demand


Here’s a fundamental fact I want you to remember:
When the supply is high, prices go down. When the demand is
high, prices go up. There were people in my investment club
who believed prices would maintain its rocket speed. The
reality is, if there is too much of any type of real estate, prices
decline. Even for me! I purchased building lots for $135,000
that I would have a hard time selling for $99,000 today.
Obviously, I missed the market and will pay the price.


There comes a point in every market cycle when
investors and new buyers dry up. As the demand falls, excess
supply cascades to a more natural price level. A direct
correlation exists between rental prices and prices for homes. If
too much disparity, home prices shrink because investors won’t
buy a property they have to feed (add additional income to each
month) or have a terrible return on their cash investment.


Study the market and determine when the supply
outstrips the demand. Then, when you see new buyers light up
the home buying market, you will know when to start buying in
that area again.


Put the Breaks on Speculation


Speculation is hoping for a profit—just like when you go
to a casino and hope to come out with their money. Can you do
it? Sometimes, maybe. But the odds are in the favor of the
house.


I teach my protégées to make their money when they
buy. In other words, they know how much money they’ve made
on the day the loan closes. Know how much money you made
on your transaction the day you close, too.Buy it right, realize
your profit when you sell, and you might even get a nice bonus
of appreciation or a zone change that increases the value.


Don Loyd’s RICH System™ uses a very simple way of
evaluating an investment property. If you can’t answer the
questions below and get good, positive answers, you may not
want to invest in a project. Ask yourself:


R – Return? – How much wealth does this property create for
me today? This is not appreciation or how much you can sell it
for next year.

I – Investment? – How much money out of my pocket will
this take? Normally, I want to put in as little money as
necessary.

C – Cash Back? – If I put money in, when do I get it back?
The goal is to get your money back as soon as possible so you
can do more investing.

H – Holding Income? – Does the property have positive
cash flow? You want to avoid negative cash flow. It can put you
out of business.


This simple formula can be used when considering any
investment made by most investors. It’s very telling in that it
gets to the heart of the issue. Cash and cash flow are vital to the
livelihood of investors.


Equity Preservation


Don’t easily give up your equity. Protect it to the best of
your ability. If you think you have to borrow from your equity
pool, borrow from some of your investment properties. I have
lines of credit on almost all my homes. I’ve never tapped into
my investment portfolio, but it’s there if I need it.


Use great care to protect your personal home. Don’t
borrow against the equity. It’s too valuable a resource to tap
into for anything other than short term money. I you are
disciplined enough to resist the urge to use your equity for a
vacation, new car and such things, I recommend you get a
home equity line of credit (also called a HELOC) for short term
loans. Your equity for any other use than short term loans
exposes your family to unnecessary risk.


History suggests you’ll do fine in real estate if you have
an investing plan that includes allowances for the up and
downs of markets and sound exit strategies. You can do well in
bad markets, too. In fact, you can get rich if you know what you
are doing. Spend the money it takes to get good education,
information, and coaching. It will be money well spent.


Finally, learn to think outside the box of conventional
wisdom. Being creative will go a long way toward your success
as a real estate investor.

Power in Positivie Expectancy

“It all begins with a dream. A dream is like a seed that when watered and nourished grows into a grand experience or noble cause. If you want to see tomorrow, dream. A dream is a glimpse into the future. “ Don Loyd

Success or failure is up to you. God has given you the ability to do great things regardless of the challenges.

I grew up with a speech impediment. As difficult as it was to endure, I determined not to let it, or people’s reaction to it, stand in the way of my dreams. I decided those who poked fun or ridiculed me were not in charge of my life.

The story is not that I had a speech problem. The story is I had a speech problem, so what! The fact is, all of us have a “handicap.” Some handicaps are visible, but the most destructive ones are those that are not visible – the mental stumbling blocks that can lead to mediocrity and failure.

So what if you were born into poverty?

So what if your dad left when you were a baby?

So what if everybody thinks you’re not too bright?

So what if you think you look funny (or sound funny like I did)?

So what if you didn’t go to college?

So what if you’ve faced some real life-changing tragedy?

So what?

You still have the choice between success and failure and it depends to a large degree on your mindset. You are unique, God made only one of you. You have something important to offer and share with the rest of us.

Oprah Winfrey wrote in O Magazine, “I've come to believe that each of us has a personal calling that's as unique as a fingerprint - and that the best way to succeed is to discover what you love and then find a way to offer it to others in the form of service, working hard, and also allowing the energy of the universe to lead you.”

That’s enormous advice! The key mindset is a positive expectancy. The important thing is the journey you take.

Live life on purpose, not by chance and never fear failure. Work hard, and smart, to change your reality by enlarging your dreams. I’m confident you’ll find the process a worthwhile and exciting challenge.

Don’t limit your possibilities by dreaming small. Warmly embrace huge dreams.

Now, go dream and dream BIG.