I was invited to debate Robert Shiller on Fox Business News to comment on March’s S&P’s Case Shiller numbers. What an honor! (You can see the video is at the end of this blog.)
While housing prices are going up across the country, Mr. Shiller’s opinion is that the rally won’t last because it’s government supported. He believes that when government stops backing it, prices will go down again. Fox wanted an opposing view – someone bullish on real estate to counter Shiller – so they called me.
Shiller was recently heard on Bloomberg Television saying, “If you think investing in housing is such a great idea, why not invest in cars? Buy a car, mothball it, and sell it in 20 years. Obviously not a good idea because people won’t want our cars. It’s the same with our houses. So, they’re not really an investment vehicle.”
I was excited to have a chance to give another side, because so much is missing in that statement. Most real estate investors don’t buy property to “mothball” it for 20 years. They buy it for the income it will produce during those 20 years.
If a car produced income, it might make a good investment too – just ask rental car companies! They aren’t buying cars and “mothballing” them either, hoping the value will increase over time. They buy for cash flow today by renting the vehicle out.
Anyway, I did the interview, and unfortunately only had about 5 minutes of airtime. It went so quickly! There was so much I wanted to say but couldn’t, that I decided to finish my thoughts in this blog.
The first question was “Kathy, is there still something to worry about?”
I tried to emphasize that there’s no such thing as a national housing market. There are thousands of neighborhoods across the U.S., all performing differently. You can’t generalize. Some areas are overheated with too many buyers and too few homes for sale. In those areas, some people are getting a little frantic, making offers way over the asking price. If they are buying to lock in low payments, thanks to low interest rates AND the plan to hold that home for a long time, they will probably still be OK. But if they are hoping to turn around and resell for a profit, they are taking a risk. The music could stop at anytime.
There are still neighborhoods where you can get property for half of what it cost 6 years ago. Buying one as an investment can make sense if they are in good neighborhoods, and if rents are higher than the monthly mortgage payment. This is what we try to help people accomplish at Real Wealth Network – buying property that cash flows with just 20% down because local rents are higher than the mortgage payment. It’s a strategy that can help ordinary people build great wealth.
I also wanted to emphasize that our population is growing by 4.5 million people every year. That translates to needing about 2 million new households each year. Add to that the 5-6 million people who shacked up with family and friends during the recession who will be hoping to move out soon.
Builders need to produce 1.5 million new homes to keep up with growth – but they’ve been building only about 500,000 new homes each year for the past 6 years. We are going to find ourselves facing a shortage of homes very soon.
One of the best investments today is producing finished lots for builders. That’s one of the main investments that we are focused on at Real Wealth Network: buying land and entitling to sell to builders. There’s BIG money in that.
The second questions was: “What about all the hedge funds buying? Why aren’t we seeing more people who plan to live in homes out there buying?”
Hedge funds are buying up so much property, they are leaving very little left over for the 1st time buyers. Sellers prefer cash offers, and hedge funds have billions of dollars to unload into the market. They are driving prices up in many areas, as they don’t seem to be very price-conscious.
When I said that sellers should consider selling to homeowners, I didn’t mean to make it sound like investors were “evil.” If you know me, you’ll know it’s the opposite. I want to show regular folks how they can build wealth – one house at a time. I do not believe single family homes are an appropriate investment for Wall Street because they are management intensive and no two homes are the same. They are not stocks.
The third question was: “Do you think you have to wait 30 years to see a return on a house?”
Of course not! You can make money the day you buy it if you buy right. If you are buying a house as a primary residence, and the mortgage payment is lower than what rent would be, you’ve just made money. Over time, those mortgage payments will pay off the loan, so what you would have been paying in rent can buy you a house that you own free & clear someday.
If you are buying a house as an investment and the mortgage payment is lower than the rent, you make money from the extra cash flow every month. Again, over time, your renters will have paid off your loan, and you’ll own that property free & clear. How nice would it be if you owned 10 rental homes, all paid off, by the time you’re ready to retire?
I find it very interesting that Mr. Shiller says real estate is not a good investment and that it makes more sense to rent. My question to him is, “Who should these people rent from?”
I hope from the very savvy investors within Real Wealth Network!” It’s an oxymoron, isn’t it?
To his credit, I would like to end this blog by saying that I don’t think houses did anything wrong. The real problem is the blatant lack of financial literacy in this country. People make really bad financial decisions because they just don’t know any better. That’s why we are so proud to be turning ordinary folks into savvy real estate investors every day through our Real Wealth Investor Academy. We offer the highest level of education in easy-to-digest, bite-size pieces at a price anyone can afford. There are no slick talking salespeople allowed to teach. Only real-world, experienced investors who have years of experience and success.
Check it out: RealWealthInvestorAcademy.com
Here’s the Fox News interview. Let me know what you think!