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Dr. Kalinda Rose Stevenson
Buying The American Dream
“No man acquires property without acquiring with it a little arithmetic also.”
Ralph Waldo Emerson
I have a question for you…and it’s not a trick question. Here’s a hypothetical situation.
You have the opportunity to buy an investment property. The property is perfectly located, well-priced, in move-in condition. You have outstanding credit and you have enough money to pay the down payment and pay the mortgage. You already have several potential renters, all with excellent credit and references. You can charge enough rent to cover all of the expenses of the property and leave you with money left over.
My question is, Do you buy the property?
If you are like many real estate investors, especially beginning investors, you will probably jump at the opportunity. Of course you will buy the property! And you will celebrate your good fortune at finding such an outstanding deal.
My next question is, Is buying this property really the best investment strategy? Or to be more precise, is buying ANY property the best investment strategy?
“Sometimes your best investments are the ones you don’t make.”
Donald Trump
You might be saying, “How else do I invest in real estate if I don’t buy property? What other options are there?” The short answer is that successful real estate investors know that controlling property is often a far better option than buying it. But before considering other ways of controlling property without buying it, let’s go back to the compelling lure of buying real estate.
“Property is the fruit of labor; property is desirable; it is a positive good in the world.”
Abraham Lincoln
The “American dream” always includes owning your own home. One of the great divisions in our society is the division between owners and renters. When you apply for credit, you are faced with the inevitable question: “Do you rent or own?” Credit agencies give higher ranking to home owners than tenants. As a homeowner, you also have tax advantages that renters do not have. You can deduct mortgage interest on your income tax.
Home ownership also carries emotional benefits. With your own home, you have the freedom to do what you want with your property. You don’t have to ask a landlord for permission to paint your house. You can hang pictures on the wall anywhere you want. You don’t have to worry about a nosy landlord snooping around. Your home is your own.
According to the American dream ideal, renters fall short of the American dream. You are paying to live in someone else’s property. Your home is not your own. Leaving aside all of the other limitations of renting rather than owning, renters live with a subtle social stigma. Even if no one ever says it out loud, the “American Dream” teaches us that successful people own their own homes and unsuccessful people rent.
The economy and hot real estate markets of recent years have added two additional elements to this formidable social urge toward homeownership as the ideal of the American Dream.
In recent years, we have had two strong and somewhat contradictory trends. One trend has made it easier for renters to become homeowners. With low interest rate mortgages available, banks have loaned money to people who would never have qualified for mortgages in earlier years. With “no document” loans and “stated income” loans available, former renters have been transformed into homeowners.
We have all seen pictures and news clips of smiling people standing in front of their own homes-homes they would never have been able to afford without special programs for first-time homebuyers. They now own their little piece of the American Dream.
At the same time, in hot real estate markets, prices have risen much faster than incomes. Owning a home becomes a carrot on a stick for people who want to buy but cannot afford the high costs associated with buying. These frustrated want-to-be homeowners cannot make the magical transition from renters to homeowners. We have also seen stories and pictures of these people and seen their unsmiling faces as they complain about how they cannot buy into the American Dream.
My point is that we live in a society that has taught us that buying a house is a goal worth almost any amount of money and sacrifice.
“Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for – in order to get to the job you need to pay for the clothes and the car, and the house you leave vacant all day so you can afford to live in it.”
Ellen Goodman
Now let’s say that you have done it. You have bought your own home. You have achieved a major goal of the American Dream. What comes next?
The same real estate market that has turned some tenants into homeowners at the same time it has prevented other tenants from buying homes, has also attracted thousands and thousands of people into real estate investing. Real estate investing offers the promise of the next step in the American Dream. If buying your own home is Goal #1 of the American Dream, buying investment property is Goal #2. If owning one house is good, buying more houses is even better.
“No man but feels more of a man in the world if he have a bit of ground that he can call his own. However small it is on the surface, it is four thousand miles deep; and that is a very handsome property.”
Charles Dudley Warner
This is real success. You know you have “made it” when you not only own your own home, you can own the homes of renters who have not managed to grab their little piece of the American Dream. You are not only a home owner, you are the owner of investment properties.
And this is the place where the American Dream for homeowners can easily turn into the American nightmare for real estate investors. It all comes down to the unexamined assumption that buying real estate is the only way to invest in real estate.
Too many beginning real estate investors leave their real estate seminars and go out to buy investment property as if they were buying their own homes. They use their own money and their own credit, and scramble to buy property they cannot really afford without understanding what successful investors know about investing.
“Few rich men own their own property. The property owns them.”
Robert Green Ingersoll
For example, on Sunday, as I sat in yet another real estate seminar, in a too-cold hotel meeting room, I listened to a phone call to a woman who wanted to sell her house. She had bought it last spring as investment property with a 95% loan. She said she had overpaid for the property. She had already put in thousands of dollars of repairs. And her intended lease-optioner had backed out at the last minute. Now the owner-investor was over the proverbial barrel, with no rent to cover her expenses, a mortgage payment due, and a real estate market that is softening. She has tried to sell the property, but has no takers. At the same time, she insisted that she has $30,000 of equity in the property and wants to get all of her equity back in a sale. It was clear that she has no idea of the costs involved in selling a property.
Without going into more details of her situation and the solution that was being offered to her, I want to make the point that she was in big trouble because she had bought an overpriced investment property she could not afford, with her own money and her own credit, without counting the costs involved.
The root of her problem was her unexamined assumption that the way to make money in real estate is to BUY real estate the same way she would buy her own house. What she didn’t know was that there are ways to control investment real estate without buying it. Sometimes, buying investment property makes sense. And sometimes, not buying it makes more sense.
If your plans for creating abundance include investing in real estate, you can increase your potential for success by learning to think the way successful investors think. This process includes examining various homeowner and consumer assumptions about money and real estate. The first assumption to examine is the belief that making money in real estate requires you to buy real estate.
This article was originally published November 1, 2005.
http://www.abundantlyalivenow.com/archive/AANN-2005-11-01.htm
HOW TO IDENTIFY THE MINDSET DIFFERENCES BETWEEN CONSUMERS AND REAL ESTATE INVESTORS
FREE 6-part ecourse: “How To Lift the Consumer Money Mindset Lid off Your Real Estate Investing.” The course is available www.nomoneylimits.com
© 2005 Kalinda Rose Stevenson, Ph.D.
Debt or Alive, Inc.
2248 Meridian Blvd. Suite H
Minden, NV 89423
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