If ignorance breeds fear, and fear blocks people from becoming financially successful, using single family houses to help you climb capital mountain is a proven remedy for mediocrity. Millions of people have created nest eggs simply by buying a house using mortgage debt, then paying off the loan over time. Let the record speak for itself; how many people do you know personally whose lifetime savings are represented by their home equity? Today wouldn’t be too soon to get started buying.
Below is a 10 question quiz. I’ll bet you already know enough to make the decision to move one step up capital mountain and to buy a house today.
Can you spot a worn out, leaky, or faulty roof when you look at it?
Can you spot a house that has sloping floor due to a faulty foundation?
Can you spot a leak in the ceiling or under cabinets?
Can you check to see if doors and windows open, shut, and latch properly?
Can you check water pressure and leakage by running all the faucets at once?
Can you spot any slow or over-flowing drains as a result of #5. above?
Can you distinguish a good floor plan from a poor floor plan?
Can you distinguish a good neighborhood from a bad neighborhood?
Can you pace off the lot on which a house sits to estimate its size?
Can you call an appraiser to find out the retail value of a house?
O.K., you know enough! Now, let’s see how most single family house owners fare as investors. Market demand and rising prices for new and used houses today are pacing the stock markets in attracting new money and easy credit. But, unlike the stock market, there hasn’t been any speculative bubble in single family houses. This is primarily because only about 2% of Americans speculate in house values or invest in single family houses for rental income. Single family houses don’t attract major investors who can cause the market to rise or fall very quickly. The SFH market is bigger than all the securities markets wrapped up in a ball.
Most people don’t speculate. They just buy a house and live in it until it has served its purpose. Then they sell it and buy another residence. The entire house ‘food-chain’ consists of young families that buy their first home, whether stick-built or manufactured. After a few years they outgrow it and ‘move up’ to a larger home, or a better neighborhood. This process continues until they retire, then they start the downward trek, selling the larger home and replacing it with a smaller residence. Eventually, they wind up in a condo, a mobile home, or living with relatives. With each step up and down, the housing market provides buyers and sellers. When credit is tight, it is often provided by motivated sellers.
Like Seinfeld says, I’ve ‘been there; done that’. I started married life living in a rented room; then in my in-laws’ basement; then in a mobile home; then in a parade of homes, each larger than its predecessor. During that entire period, I’ve been able to buy and sell my homes without using conventional financing. I’ve traded in one house to get another, and I’ve accepted trade-ins. I’ve gotten sellers to carry back financing, and I’ve carried back financing myself. I’ve bought and sold using Lease/Options. I’ve sold for cash with no financing at all.
Generally, from the standpoint of political-risk, single family rental housing is below the radar screen. When a politician decides to make political capital by rolling back rents and installing rent controls, apartment owners are trapped. On the other hand, single family house investors can always place their houses on the market and sell them to the segment of the population that wants to continue to live in a free-standing home. Because of the inherent stability of the owner-occupied housing market, even in periods in which institutional financing is tight, lenders rate home-loans as among their best portfolio investments. What credit there is goes to houses, shoring up that market while other investments are plummeting. What happens when credit loosens up and interest rates fall?
