Free Money Company

Wednesday, July 15, 2020

Real Estate

Come one, come all! Buy some land! It always goes up! It is the best investment there has ever been! Enjoy this wonderful mortgage that you pay until you die, then possibly, if you are lucky, your offspring get stuck paying it!

Or sometimes the schtick goes like that, like in a seminar or pamphlet: “The best way to create wealth at a rapid pace in today’s market is to buy rental properties with the bank’s money. Then we will teach you everything you need to know!” Boy, the real estate cons just go on, and on, and on.

The reality is that life is fraught with peril, and the real estate market gets hit with the same massive ups and downs as the rest of the illusionary investment market. The middlemen make all the money, while the folks who are putting out their hard-earned greenbacks get stuck holding their destroyed futures in their hands when the market goes south, which it always does, almost on a schedule.

In the news we are pounded with stories of these real estate titans, who have timed the market, and either built large real estate fortunes, or constructed these enormous buildings, completely through their own ingenuity, or through the creation of a team of brilliant people who knew exactly what to do at every turn. Unfortunately, this entire story is lies, and these people are taking the same whacks when the market turns as the rest of us are. No one is really leap-frogging the market when things get bad. Do you really think there are rich people in the world that have done it without massive cheating? No. What they have done is something called selective opportunity usage.

If you see a piece of real estate, and you have a history with real estate, meaning you were a broker for a while, or maybe your family has a background in it, you possibly have a better chance than the average person in the market of buying the land or house or building, maybe fixing it up a little, then renting or leasing it out, or just letting it sit there as the market in that area improves compared to what it cost you to acquire it, or you just sell it outright soon after. Now this sort of information is no mystery. The mystery is the following.

When you own a piece of real estate, unlike stocks, bonds, and certificates of deposit at a bank, you may suddenly need instant cash to deal with a dangerous cost. Now when I say dangerous, I mean a cost that overwhelms what you were expecting might happen. How much? Well, that just depends on the ratio. Did you buy a $1 million dollar building, and only put $10k down on it, then leased out several parts of the building? Well, that may cover your cost, and you start to get some regular return, but unfortunately, it is discovered that the entire AC system (air conditioning system) for the building is faulty. The city you purchased the building in has given you a deadline to fix the system by, or else you must return this building, and every dime you invested into it, to the credit that provided the financing. The AC fixture process is enormous, let’s say $200k. Well, what do you do now? Depending on what your personal or corporate bottom line is, you could have just taken a bit hit, or possibly even gone bankrupt. This sort of thing happens every day. Most people who grow up believing that real estate is a good idea are fed the lie by their parents who have seen people around them do it. However, their parents have not seen their colleagues’ or friends’ or other family members’ actual financial statements regarding said pieces of property. When it all shakes out, and the numbers possibly come to light, suddenly your neighbor who was driving that Rolls Royce for maybe ten years, dies in a pine box because his family cannot afford anything else, bankrupted by his huge investments in real estate over the years.

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