A Perspective on Real Estate - Never Again in Our Lifetime So Be Prepared

In recent years lots of people have been playing the real estate markets thinking there was little risk, even trying to flip houses. An associate of mine told me a story about an MD that committed suicide over multiple investment properties where his properties were "under water" (the houses were worth less than the mortgages).

Everyone thinks he or she is an expert, like gambling addicts who think they can make up their losses with one more bet.

The Rude Awakening is Upon Us.

It's sad, but true that Real Estate doesn't always go up in value.

It might take a generation or more for real estate prices to recover in some locations.

To illustrate this point with a real life example from the Great Depression, we knew a woman who was living off real estate in the 1990s her father bought during the 1920s and 1930s.

60 years is a long time to wait for an investment to pay off.

It should change the way we manage our personal real estate investments. If you are paying on a big mortgage you experience severe risk in the event of job loss or an economic downturn.

Owing the bankers and loan companies just puts you under more pressure. So what should you do?

You want to get rid of the obligation as soon as possible. It makes you vulnerable to any income glitch like a layoff. If you own the structure outright, it means you only have to pay taxes, insurance and utilities.

Here are some good strategies.

1. Save up a down payment if you are buying.
2. Get a short-term mortgage.
3. Pay it off as fast as you can.
4. Buy or trade down to a smaller house that is more affordable.
5. Taxes will be more reasonable on smaller homes.
6. Get some land where you can grow food or add on other structures.
7. Look for tax breaks for agricultural land and homestead exemptions.
8. Avoid car payments and apply the income to your home. Cars are terrible investments. Even now real estate is better. I've seen car payments greater than many mortgage payments. You can't live in a car.

Finally, prepare for an even further drop in real estate prices and many more foreclosures creating a self-perpetuating downward spiral. If you prepare for the worst and it doesn't happen, think how much better off you will be.