Kevin's View of Real Estate Investing in Today's Market

There is a lot of pain happening to Real Estate Investors now.
Some is self-inflicted; some has come from outside forces.
Here is how I see it.

Key Points

Speculators are not Investors
Get into Good Debt to become wealthy
This is a great time to be a rational Investor

The next few years will destroy many who think of themselves as Real Estate Investors. They will be revealed speculators. We have already seen large swaths of the country crushed by the weight of abandoned and foreclosed properties. Homeowners will usually struggle to avoid foreclosures; unfortunately some speculators simply exit when the market forces no longer give them easy profits. With little or no equity the speculators have little to lose if their risky bets don’t pay off. This hurts everyone.

The Good News
The next few years will be a magnificent time to be a rational Real Estate Investor. I am aggressively positioning myself and my Clients to benefit from the “millionaire maker” part of the real estate market cycle. We currently enjoy ridiculously low interest rates. This will not last. The strategy I teach and follow is to use this opportunity to get into debt as much as possible. Anyone who locks in these low rates now will look like a genius 5 years from now when rates are oppressively high.Re-finance adjustable rates into fixed immediately and/or buy more properties with maximum debt that’s fixed for at least 20 years. The second threat (fantastic opportunity) is inflation. The Federal Reserve has clearly demonstrated that they will use inflation to fight the current weak economy. In the 1970s, inflation devoured the life savings of millions of Americans. Careful savers will hopelessly watch as their purchasing power is dissolved away. I can’t change that, but I can protect my family, friends, and anyone else who cares to listen to me.

Get into Good Debt to Become Wealthy
My leveraged properties are all cash-flow positive or break even. Some are depreciating and some are appreciating. But over time, California real estate typically doubles every 10 years. Other markets increase about x 1.5 every 10 years. Because all of my loans are fixed rates, inflation will be my friend; I welcome it. As inflation hits, both property values and rents should increase. My cash-flows and my property values will almost certainly be pushed up. I advise Clients to buy investment deals with as much leverage (debt) as possible. This magnifies appreciation gains because they gain on the full value of the property not just on the amount they put in. Another advantage of high debt is that the loans are paid back with over time with increasingly devalued currency. Your payment schedule is calculated based on the value of the currency on the day you get the loan. In inflationary times, Lenders are losers, Borrowers are winners. Good debt is an asset!

Rational Investing
My focus with Clients is always on rational investing as opposed to speculating. The distinction is critical. Rational investors are focused on careful analysis, proper planning, and honest projections. We are in it for the long run, not a quick gain.

What do you think? I welcome your responses.