Real Estate ? The Long-term Investment  by Eugene L. Meyer (excerpt from RIS Media)

The "Get Rich Slow" Program ? 

Across the nation, it's a bad time for flippers looking to make big money fast, and their departure from a demand-driven market has certainly contributed to a leveling in home prices, even here on the relatively unaffected Southeastern Connecticut shore.  But for investors who view real estate as the keystone of a long-range financial plan, there may be no time like the present to buy ~ and hold.

A New Approach

Greg Rand, a Hudson Valley New York real estate broker, states savvy investors view the large, lingering inventories of unsold properties in many urban areas as an opportunity they have not seen in recent years.  His realty firm seeks out buyers who aren't looking for a primary residence but rather for a long-term investment.  He calls it the "get rich slow" program.

Rand states : "I bought a $200,000 condo five years ago when my daughter was born,"  He put $20,000 down for the property. The condo isn't producing rental income above expenses but Rand says he is breaking even and counting on rising equity from long-term appreciation and from paying down his loan.

"I'm not doing this for income but for the objective of easily financing college in 12 years," he explains. "I'm extremely confident I'll have the dollars I'll need, $500,000 when she goes away, based on my initial investment. It will be very, very largely paid down. I'll either sell or refinance it."

Rand has taken this philosophy to the bank, and for inspiration he credits financial planner James Giangrande, who worked with him to create a long-range plan. "My thing was: here's a condo for college and a share of a multi-family building for retirement and a piece of commercial property, also for retirement," Rand says.

Rand's initial thought had been to invest $20,000 in a Section 529 college savings plan, but Giangrande had another idea. He noted that after 15 years, Rand could wind up with $146,000 from a 529, all of which must go to education, leaving nothing left over.

Or Rand could buy a $200,000 property with $20,000 down and a 15-year mortgage. At the end of the day, assuming rent covers only expenses and no profit, the mortgage is paid off and Rand has at least $200,000 in equity. If the property has appreciated 5% a year, its worth rises to $415,000. The property could then be sold, or refinanced to use some of the equity for college.

"You're using other people's money to build your wealth," Giangrande explains. "It's not for everybody. There'll be times when you have no tenants or damages and you have to put money into the property, but it could be viable in the right situation for the right person with the right temperament and the right stomach for it."

Those who get hurt, he adds, are people who use equity lines for down payments or finance 100% of the sales price or don't have cash reserves, in case the house sits empty or requires repairs. And, Giangrade adds, it's important for investors to make a "holistic" financial plan that takes into account all their goals, not merely one.

Financial Planning is Key

"The world was full of investors when the market was hot," Rand says. "As the market has changed, people who still wish to invest in real estate need advice. The follow the herd mentality got a lot of people stung, and the slowdown has caused people to become more conservative."  Seek the advice of an experienced Realtor®, who knows the local housing market as well the advice of a financial planner.  Purchasing in an area with minimal inventories of available rental property is key to a reasonable risk in a long-term investment. 

Property foreclosures, looming larger in some overheated parts of the country, can also be a window of opportunity, he said. Before a property goes to foreclosure, an investor could take over the note and pay some back taxes to get clear title. "Especially with the market we're in right now, a buyer's market, it's a good time for that type of investor to step forward.

"It's not something you'd want to flip right away but hold onto for a long-term investment, knock the principal down, and one day wake up with some good equity," said McMahan, who at one time had 12 to 15 rental homes in his own portfolio. Now that his firm has grown to 11 offices and 300 agents, he's been otherwise occupied and owns only two rental properties.

Eugene L. Meyer is a former Washington Post reporter and editor who freelances from Silver Spring, Maryland.

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"But for investors who view real estate as the keystone of a long-range financial plan, there may be no time like the present to buy ~ and hold."


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