"In other words, real estate allows you to use good debt (debt that buys assets which in turn bring you cash flow) to build a business and provide passive income." Kennedy & Sutton, "Real Estate Loopholes: Secrets of Successful Real Estate Investing" p. 4.
Theory (1): If you are meticulous with your data, use of Microsoft Excel, have experience writing actionable and qualified business plans and have created healthy relationships within a local lending institution, you too can succeed in real estate investment.
Reality (1): Individuals and their advisor's are lazy and more often than not pursue the path of least resistance.
Fact (1): In Flying Horse today, there are 30 properties for sale from $300,000 to $600,000.
Of these, 8 are bank-owned, distress-sale, or requesting a lender deficiency (short-sale), in other words, 27% of the market. This number swells in significance when you consider that of the 30 for sale, 17 are resale and 13 are newly built. So 8 of the 17 resale homes for sale are selling due to distress.
Fact (2): Five of the Eight properties in distress sale are agent-owned or are owned by LLC's with Colorado Real Estate Licensees as members.
Reality (2): The path of least resistance requires little focus, embraces sub-prime thinking, and demands impatient, short-term gratification.
Theory (2): Back to the drawing board. What is this thing about focus? If you live below your means and investing becomes a primary concern, you can actually build wealth and not have to leverage your debt or worries inside ten years.
Reality (3): Nate Buie exists. Nate owns 14 investment properties in the Greeley/Evans marketplace. When you look at Nate's market data on the provided link, what pops out is that values peaked in early 2005 in the new construction world (all that Nate buys) and have since plunged $18,000 or 11% over the last four years. If Nate was a typical real estate investor (typical as defined by the average investor now in a distress sale position as referenced above) and leveraged himself to the gills, he would be filleted for all to see.
But back to the 2nd Theory: Focus. Nate bought Grade A. Nate bought properties the average consumer would want to rent (less than $200,000). Nate bought them with at least 20% down every time. Nate often bought these with 15-Year Mortgages. Nate then set out to pay down the mortgages time and time again. Nate lives off of about half of his monthly income. He invests the other half. Most real estate investors have a narrow definition of what "investing" really means: usually, they restrict that to buying something unique. Nate buys something: more real ownership of his rental property from the bank. He pays down debt. He's not focused on debt. He's focused o a real finish line: Free and Clear.
So as the Greeley market has tanked in a manner that borders on the spectacular, investors are walking around bloodied and dazed just like they are in Flying Horse. Except Nate. Nate's 14 rental properties? He owns everyone of them outright. As the sales prices fall, credit dries up and loan programs like 100% finance disappear, fewer buyers can actually buy. But people still need housing. In fact, the demand for housing has actually increased. People are still moving to Greeley and the Colorado marketplace in general. So while there is less demand to purchase housing, the demand for housing remains strong... it has just moved to the rental side of the ledger.
With 14 free and clear properties, Nate made more income last year on his passive rental income than he did selling real estate. I will give you a hint as to how much that was... Nate sold more than $10 million in real estate in 2007.
Nate Buie is six months younger than I am. One of us is a millionaire. It happens to be the guy with four kids, not three.