The Creating Wealth Show Blogcast

Latest Episodes:

CW Blogcast 69 - The US Rental Market: Headed for a Slowdown? Mar 26, 2015

Show notes

Is the red-hot rental market getting ready to cool down?

The US housing market continues to recover, fueled by promising numbers for employment and other consumer sectors. But major shifts in the housing landscape may be changing all that, as the balance tilts between renting and owning houses in 2015 and beyond.

The devastating crash of 2008 that left the housing sector in tatters and created conditions for dramatic changes in the way Americans choose and maintain places to live. When a combination of reckless lending and unprepared buyers led to large-scale mortgage defaults and foreclosures, the effects were felt throughout all aspects of the housing industry.

Among these effects: shortages of available houses to buy, tougher mortgage lending standards, and a boom in the rental market. Now, though, the consequences of all these things are tipping the balance in the housing market again – and that may mean changes in strategy for investors building a portfolio in rental income property.

Though the housing market began to recover in 2009 and beyond, home buying stayed relatively flat – but rental demand began to surge. A sluggish economy with an uncertain job outlook meant that homeownership was out of the question for many people. Not only that, in the aftermath of the housing crisis new lending standards imposed by the government made it more difficult to qualify for a mortgage.

What’s more, there were fewer houses available to buy. Construction of new dwellings ran behind demand, and exiting homes were either tied up in foreclosure proceedings or auctioned off in bulk to international investor consortiums. American home buying fell to its lowest levels in over two decades.

But for all these reasons and a few others the rental market was heating up. Those who couldn’t qualify for houses or who hose not to buy for reasons both personal and economic were seeking out rentals in markets across the country. And as demand increased so did rents.

But now, according to new data from the giant real-estate database Zillow and reports from other industry watchers, the rental market may be hitting its limits. In markets large and small, two trends may be responsible for the lowdown.

Rents have been steadily rising in the years after the crash, until in some markets they’re currently at or near record levels. That’s not just in high end high demand areas like Los Angeles and New York – it’s a trend in mid range and smaller markets too. And while local and state laws may put caps on the amount that landlords can raise rents in a given year, property owners can keep raising rents within those parameters.

In previous years, that might have been a self-defeating tactic for the landlord/entrepreneur who wanted to keep a property rented. Tenants could always choose to move rather than pay the increased rent.

But now, there’s a shortage of rental dwellings in many markets. The decline in homeownership and the increased demand for rental housing means that tenants are to an extent captive audiences, forced to pay whatever rent their landlord imposes because there’s no place to move.

That’s partly because of a surge in home buying by international investors with cash. In a move similar to the one that contributed to a shortage of homes for purchase after the housing crash, these groups are buying up single-family homes and complexes.

Though new stats reported by Zillow show that for many people, owning a home is half as expensive as renting, some renters who could buy a home are choosing not to – perhaps spooked by the specter of the housing collapse. Still others may be ready to take the plunge into home ownership – if they can meet down payment and credit requirements.

What does all this mean for investors working to build wealth in income property, as Jason Hartman recommends? The slowdown in home buying means more properties available for investors to purchase. And that means new opportunities to meet the continued demand for rental housing from a tenant pool that isn’t shrinking.

CW Blogcast 68 - Real Estate: The Only Private Investment? Mar 19, 2015

Show notes

Time was, anybody who wanted a safe and anonymous hideaway for financial assets turned to offshore banking. Swiss bank accounts and offshore havens in places like the Cayman Islands allowed depositors both legal and not so legal a way to safeguard assets from risks of taxation or seizure by the home government. But as new and proposed laws threaten to eradicate that privacy, real estate investing remains the only really private way to safeguard assets abroad.

Offshore banking has always offered big benefits to foreign accountholders: privacy, security and access to other currencies and marketplaces. Until recently, account information was highly private.

But now, that privacy may be fast becoming a thing of the past. The Foreign Account tax Compliance Act, or FATCA, is a US law enacted in 2010 to require US citizens anywhere in the world to report any financial accounts held outside the US to the IRS. That’s reason enough for foreign account holder to worry – but FATCA goes much further.

In addition to requiring individuals to report all their accounts held in foreign banks, FATCA also requires foreign financial institutions to report information about accounts held by their US clients to the IRS as well.

The move makes it much harder for individuals to hide assets from taxation, and for businesses to use “shell corporations” to conceal revenue. Though the law has been widely criticized as an attack on financial privacy, between 2012 and 2014 FATCA was ratified by a long list of countries large and small, including the major players in offshore banking, Switzerland and the Cayman Islands.

FATCA has stirred controversy not just because of its potential attack on financial privacy, but also for what critics call “bullying” of other countries into compliance. What’s more, the law is seen as the next step toward a policy of stripping everyone of their right to financial privacy.

Those worries might not be so unfounded. The Organization for Economic Cooperation and Development (OECD) is an international economic coalition of 34 countries dedicated to supporting free markets and coordinating domestic and international policies affecting its member countries. In 2014, the OECD stepped into the arena with an even wider ranging version of FATCA: the Global Account Tax Compliance Act, which would ensure reciprocal sharing of tax and account information among all participating nations.

To date, representatives of 51 countries have signed off on GATCA, which affects citizens of any participating country with holdings in any other participating country, not just the US. And while worried citizens can still find places that haven’t signed off on either FATCA or GATCA for their money, that’s getting harder and harder to do.

The creators of both laws claim that they’re aimed at eliminating tax fraud and returning missing tax revenues to their rightful owner: the government. And, they say, individuals and corporations doing legitimate business abroad won’t be penalized. But whether an accountholder is using offshore financial institutions for purposes legal or illegal, the larger concern of loss of privacy remains.

As a recent article from International Man points out, these laws, along with recent disclosures about domestic spying and other government efforts to hack financial data, have essentially stripped everyone of privacy in their financial dealings, if those dealings involve money, stocks or other kinds of investment assets. But there’s one kind of asset that still offers the kind of privacy ad security formerly promised by Swiss bank accounts: real estate.

Foreign real estate remains the one kind of asset that allows investors to evade FATCA and the like. As Jason Hartman always advises, it’s a hard asset that appreciates over time – and ownership doesn’t have to be reported to tax authorities.

Income generated by the property does, however. And that’s a major consideration for investors hoping to generate wealth from their holdings. But used simply as an alternative to traditional bank accounts, ownership of foreign real estate by individuals is not reportable to the IRS. It also can’t be confiscated or frozen like a bank account.

Government efforts to breach the privacy of individual and business financial doings aren’t new, and they aren’t always legal either. But the increasing acceptance of the US-based FATCA and the OECD’s GATCA are making those efforts entirely legal on a global scale. For securing assets and holding onto privacy, foreign real estate may become the new offshore bank account

CW Blogcast 67 - For Successful Investing, Sweat the Small Stuff Mar 12, 2015

Show notes

It’s often said that the devil is in the details. But for investors, attention to some things that may not seem so significant can make a big difference in long-term returns.

That’s the topic of a recent article and infographic from Visual Capitalist, which points out how very small tweaks to an investor’s mindset and strategies can yield more wealth. And it’s also what Jason Hartman has been saying all along: Invest early. Diversify your portfolio. Minimize risks. Keep expenses down.

Though these four simple keys apply to investors of all kinds, they’re especially relevant in the world of real estate, where it’s all too easy to fall into believing myths about investing or get swept away by enticing deals and promises of big money fast.

It’s commonly believed that investing is something done later in life, not an option for the young, or for those who don’t have a lot of resources ready to hand. But waiting to begin your investing career until you’re “old enough” or prepared enough can mean that you never begin investing at all. And since income property is an asset that increases wealth over time, investing early may be the bet way to lay a foundation for long-term wealth.

Investing early might mean setting your investing plan in motion at a young age by establishing good credit, setting aside money to cover investment related expenses and learning all you can about the process. Or it can mean taking that first step toward buying your initial investment property once you’re financially able to do so, rather than waiting for that next promotion at work, or the date of your retirement.

Diversifying your investment portfolio may not be a small thing, but putting the idea into your investing plan just might be. It may be tempting to put all your investing eggs into just one asset basket, but that can be risky if market conditions change.

It’s smarter to be open to buying properties in as many different markets as possible as a hedge against precisely that – being an “area agnostic” as Jason Hartman calls it: one who isn’t blindly attached to any one market but is open to promising investments wherever they might be.

Not only does a diverse portfolio offer a safety net in the event of a sudden crash, it also creates opportunities that wouldn’t necessarily be available in just one area: different tenant pools and economic conditions allow investors to rep profits in very different ways.

“Risk” doesn’t mean the same thing to everyone, and some investors are more risk accepting, or risk-averse, than others. There’s risk involved in every investment, of course. But investing success depends on avoiding needless risks and doing what you can to minimize the risks you do face.

Educating yourself is a basic way to do that – and it helps you stay in control of your investments. One needless risk many investors take is to leave their investing efforts to other people. While it’s important to get good advice from qualified people, the more you know, the better you’re able to evaluate that advice – and decide if those offering it are competent and honest.

Keeping the dollar signs out of your eyes is another way to minimize risk. Get rich quick promises and deals you must jump on immediately may be enticing but they carry great risks. Evaluating your tolerance for risk is something every investor should do – and so is resolving to avoid needless risks.

Keeping your expenses down is also key to investing success. Leveraging the power of debt is one way to do that. Using up all your savings to buy an “investment” property can end up being costly. Buying your investment properties with a fixed rate mortgage that’s covered by monthly rent payments reduces your risk and makes your own savings available for other uses.

Paying attention to other ways to cut expenses can also help boost your investing returns. Managing investments directly rather than paying management companies or property managers can keep money in your pocket – and so can getting multiple estimates for repair and maintenance work. Being mindful of ways to cut expenses is a small action that can boost investing returns.

Successful investors build wealth by taking both a long and a short view of the process. Some things may be out of your control – but the little things that make a difference are ones that any investor can do.

CW Blogcast 66 - Failed Policies Keep Renters Renting Mar 07, 2015

Show notes

It’s practically a given in American society that owning a home is the key to stability and success. But although the US government has spent more than two decades drafting a variety of policies to create that “homeownership society,” the percentage of homeowners has hardly changed at all. And that’s good news for income property investors ready to reap the benefits of the shift to a “renter society.”

As a new article from The Washington Post points out, home ownership in the US has always represented more than just a possession. Staking out your own little plot of land was a key piece of the country’s frontier heritage. It represented steadiness and a commitment to the future. And those attitudes about homeownership morphed into the “American dream” of job, family and a secure future.

The “dream” was so important that in the years just after the Second World War, government loans and other kinds of subsidies made it possible for returning soldiers to buy homes and start the families that became the famous Baby Boomers. And in the years since then, the US has clung to that belief, creating policies to boost homeownership that not only haven’t worked, but also actually contributed directly to the crash that destroyed the housing market.

Recent statistics reveal that at the end of 2014, only 63.9 percent of Americans owned their own home. That’s the same rate charted in 1994. And as the Washington Post reports, those rates have gone up just one percentage point in 50 years, as shown by US census data.

Though homeownership has always held a special place in the American psyche, the years between 1995 and 2005 marked a particularly aggressive effort on the part of the US government to boost home buying and promote a homeownership society that would, in theory, promote economic stability and prosperity. More homeowners, it was believed, would improve lighted neighborhoods and bring stability to minority families.

Democrat Bill Clinton set a specific goal of raising the homeownership rate to 67.5 percent in 1995, and his successor George W. Bush went even further, aiming to create over 5 million new minority homeowners by 2010.

Those goals were boosted by aggressive federal policies that offered low lending rates, homeownership support programs and other kinds of subsidies designed to help those who in past years might never have qualified to buy a home. And it worked p for a while. By 2005, homeownership rates had jumped to 69 .1 percent.

Then came the crash. A combination of factors including aggressive homeownership policies, reckless lending and a troubled economy set many of these new homeowners up for failure. Unable to pay suddenly ballooning mortgage payments and keep up with fees, “marginal” homeowners fell into default and foreclosure by the millions – victims, in some ways, of the very policies aimed at helping them buy homes in the first place. Many of these former homeowners, their credit ratings tarnished by mortgage defaults, can’t expect to buy another home.

The aftermath of the push to get as many people as possible in their own homes has left fewer people in them than before. Although some of the stringent lending standards put in place after the crash have relaxed, people aren’t buying – and that means that the US may be shifting from a “homeownership society” to a renter’s culture.

That suggests a change in American attitudes toward renting, which in a society in love with homeownership has always carried a bit of a stigma. Renting is often seen as temporary, transitory and unstable – something you did on the way to buying your very own home.

But economic reality and shifting attitudes suggest that may be changing. As more and more people opt to rent long term either by choice or circumstance, the US may be headed toward a housing profile more like that of many European countries, where homeownership doesn’t convey any particular status or cultural worth.

And as Jason Hartman says, that’s good news for smart investors, who can expect to reap long-term returns from a growing pool of renters that shows no sign of shrinking.

CW Blogcast 65 - Internet Real Estate Sales: Changing the Game? Feb 26, 2015

Show notes

Online real estate transactions now account for over half of all housing purchases in the US alone. The Web offers a place for buyers, sellers, agents and investors to do business that bypasses the traditional “brick and mortar” style of doing business – and it’s changing the game for all concerned in ways both good and bad.

The online world of real estate takes many forms. Only databases provide a place for agents to list their services and properties. Buyers can search by price, location, agency and more. These sites serve agents and brokers who make the initial contact with a prospective buyer through he online portal, but then the rest of the transaction takes place in the traditional way.

Those big online listing sites also serve a new breed – real estate agents, buyers and sellers that exist only online. The entire property transaction can take place electronically, without any parties ever meeting in the physical world.

Online transactions are fast and convenient. They can be conducted from anywhere in the world – an appealing prospect for investors interested in buying properties abroad or those who want to diversify their portfolio at home – a strategy Jason Hartman recommends.

But as a recent article from Business Insider reports, those very features are creating conflict between “brick and mortar” real estate agencies and those doing business purely online. The parties involved in the current conflict are UK_based OntheMarket and a host of competitors angry at the site’s success at poaching their clients with lower listing rates and more services.

While that might not seem like much oaf a concern to housing market watchers elsewhere in the world, it points up the fact that online real estate transactions continue to play a major role in both commercial and residential real estate purchases throughout the world. And because that’s true, all parties involved must learn how to navigate the ups and downs of this rapidly changing landscape.

The world of online real estate includes options as diverse as massive databases of properties and agents, auctions, agency and individual agent websites, and private transactions conducted directly between buyers and sellers through classified ads and even social media.

Transactions can be conducted completely online, or go offsite into the physical world after the initial contact is made. Title searches and many other aspects of closing a deal can be done online too – and thanks to social media all parties can stay in frequent, real time contact. Properties can change hands via online funds transfers to private accounts or sites like PayPal in virtually any currency – even Bitcoin.

But s the frustrated agents in the Business Insider piece point out, bypassing the tried and true system of buying and selling property comes with its own set of risks. Entities that exist only online can be legitimate –or not. They can vanish in a heartbeat, often after collecting large amounts of money from unsuspecting investors with dollar signs in their eyes. That’s what happened in a recent scam in which a bogus real estate investment company sold eager investors on a plan to buy up cheap houses in distressed Detroit – and then vanished, taking investors’ funds along.

Because the entire operation was conducted online, once it closed up shop, the investors who had been bilked had virtually no chance of getting their money back. The online world is home to other scammers, too. In a variation on the old “Nigerian prince” scheme, scammers post up heart-tugging ads about hardship and tragedy, begging for someone to sell them a property outside their country. Gullible investors put up money – and never see it again.

Listing scams also abound. Scammers snatch legitimate listings from the large databases and relist them under their own name, selling and re-selling the same property over and over again until someone catches on.

The new popularity of using Bitcoin for online transactions of all kinds – not just for real estate – also opens the door for scams. Bitcoin can be used for just about any transaction that both parties agree upon, and that includes buying and selling homes and other big-ticket items. It’s becoming increasingly favored for international transactions, especially when one or both parties hail from countries with unstable currencies.

But Bitcoin is anonymous and untraceable. If a deal goes bad there’s no recourse for either party. There’s no way to stop a check, trace a deposit, or do any of the things that can protect a transaction involving traditional currencies. And bypassing the safeguards of traditional process creates risk too.

While real estate professionals, buyers and sellers of the traditional variety may complain, but online property transactions are claiming an ever-bigger piece of the real estate pie. In this ever-changing world full of conveniences – and risks – it pays for investors to take Jason Hartman’s advice to stay informed – and in control. (Featured image: Flickr/mikhailchurykin)

Source:“Real Estwate Agents Are Waging War Against the Internet.” The Economist via Business Insider. businessinsider.com 20 Feb 2015

Read more from Jason Hartman:

US Dollar Is Most Crowded Trade in the World

Cash Flow Investment

CW Blogcast 64 - Would You Buy a House With Bitcoin? Feb 19, 2015

Show notes

he Bitcoin has changed the way the world thinks about money, and its influence continues to grow. Since the first Bitcoin transaction took place 2009, the digital currency has been accepted by a steadily growing list of businesses, institutions and marketplaces – including real estate. And it’s a trend investors need to watch.

The Bitcoin was created in 2008 as an experiment in freeing financial transactions from the control of traditional institutions and regulations. Completely digital and totally unconnected with any kind of government agency or banking concern the Bitcoin promised to democratize money completely.

Developed out of a computer algorithm that dedicated geeks could use to ‘mine’ new coins, the Bitcoin can be used in any transaction two parties agree upon. There’s no way a government entity could interfere or track that transaction. Bitcoin can be bought and sold on several large exchanges operating around the world to make transactions of small and large amounts run smoothly.

From those early days, Bitcoin deals have gone mainstream. In world exchanges, Bitcoin stands alongside traditional currency heavy hitters such as the dollar, the euro and the yen, with values that fluctuate from lows of $20 to highs of over $200. Bitcoin can be used to buy cars, pay college tuition, build a website, get fertility treatments, travel – and now, buy and rent houses.

Bitcoin’s presence in the world’s real estate market has grown significantly since the creation of major Bitcoin exchanges that make it easier than ever to conduct business using the digital currency. It’s possible to buy and sell real estate entirely in Bitcoin – and even to pay your rent in Bitcoin too. To do this, all that’s necessary is two parties who agree to the deal.

Butcoin is especially attractive to investors who want to buy real estate in a foreign country. Most popular now in Asia, the use of Bitcoin in real estate transactions is spreading worldwide. The digital currency appeals to investors from countries whose official currencies are unstable or devalued, but Bitcoin transactions offer an upside – and some serious downsides as well – for investors everywhere.

Should you buy, sell, or even rent, investment property with Bitcoin? The very qualities that make the cybercurrency appealing also contribute to its iffy reputation among investors and money market watchers. The anonymity and lack of regulation over Bitcoin transactions made the digital currency a prime vehicle fro all kinds of illegal transactions, from drug dealing to money laundering. Many people are aware of Bitcoin’s connection to the online drug marketplace Silk Road, thanks to the widely publicized trial of its alleged founder in January 2015.

The Silk Road incident called attention to one of the main concerns about Bitcoin. Digital currency is independent of any issuing organization such as a country’s central bank or other large financial institution. While that keeps Bitcoin “free,” it also means that many of the safeguards surrounding traditional money just don’t apply.

In the US, the government can block certain transactions that break local or national laws. It can track transactions through bank accounts and other means. Using those paper trails it can prosecute suspected criminal activity – and compensate victims.

In a Bitcoin transaction, none of those safeguards apply – and if a deal goes sour, there may be little or no recourse for those involved. A recent case involving a Hong Kong based Bitcoin exchange resulted in the loss of over $300 million USD in a suspected Ponzi scheme – but investors had little recourse once the exchange closed its virtual doors.

The volatility of Bitcoin itself may also present some challenges for investors in big-ticket items like houses. Bitcoin trades in the international money markets like traditional currencies, and that means its value can fluctuate widely. The property you buy with Bitcoin today may sell for a drastically different amount later on.

CW Blogcast 63 - Real Estate - Still the Leading US Asset Feb 12, 2015

Show notes

If you put your money on coffee and cattle in 2014, you might be smiling all the way to the bank. But if you backed crude oil and gas – well, not so much.

That’s the verdict from Business Insider’s recent charting of the performance of what it claims are all the major asset classes in the world. It’s a complex, visually striking chart that lays out, in shades of green and red, which assets showed a profit at the end of the year, and which didn’t. While the results are striking in some ways and strange in others, the chart is most notable for what it left out: that most stable and consistent of US asset classes – real estate.

Business Insider’s chart lists coffee as the most productive asset of the year, followed by cattle and a variety of foods, precious metals and other commodities, which makes for some strange rankings. Palladium performed better than cocoa, but sugar outdid platinum and soybean meal yielded worse returns than lean hogs.

High performers and low ones intersect at the boundary of orange juice and gold, and the chart predictably bottoms out with energy products such as oil and gas. But where is real estate? As Jason Hartman points out, real estate is no only a perennially desirable asset, it’s also one of the most protected, with a long list of tax breaks and exemptions that don’t obtain with any other kind of investment.

The housing crash of 2008 put real estate front and center in the public’s awareness. Millions of homeowners lost their homes due to foreclosure and loan defaults. The US real estate market struggled to recover, with massive numbers of homes stuck in the “foreclosure pipeline” and unavailable for sale. Houses were flipped and banks penalized for bad lending practices. Mortgage standards tightened. Economic conditions prevented hopeful homebuyers from getting a loan.

Through it all, though, smart investing in income property continued to yield returns – and as other assets such as precious metals and natural resources hit heir limits, opportunities in real estate continued, thanks to low interest rates and thriving local economies outside of the major real estate markets.

Real estate is always in demand. Everybody needs a place to live. And because conditions since the housing collapse have put homeownership out of the reach of many Americans, demand for rental is surging. Lending standards are tighter and so are constraints on budgets for things like down payments. People who might have bought a home in previous years are now forced to become long-term renters.

Add to that tenant pool the expanding numbers of people who choose to rent rather than buy homes, and it’s clear that current conditions are opening new opportunities for investors.

Tax laws are always changing, but even so, real estate remains the most tax-favored asset an investor can have. Depreciation, repairs, and ongoing maintenance are among the deductions a rental property owner can make. Some exemptions and deductions pertain to homeownership in general, while others are specific to investment property. In some situations, investors can even write off periods of vacancy when the property isn’t yielding a return.

What’s more, rental real estate will keep yielding returns for the life of the investment. With a mortgage paid by tenant rents, investors can keep their own money secure for other purposes. Risks are assumed by the lender, who can accommodate situations like natural disasters with loan grace periods and adjusted terms to help property owners get through a tough time.

The Us real estate market is many markets – and not all of them are created equal. Opportunities await Investors who can diversify their holdings into those mid range markets with opportunities for growth in thriving local economies. And those opportunities aren’t available with assets like precious metals, which have a limited potential for returns over the over the long term.

The 2014 overview of how major world assets performed makes for interesting reading. But without the heaviest hitting asset of them all – real estate – in the mix, the results may not mean much. For investors hoping to make long-term profits, income property trumps palladium and orange juice every time.

CW Blogcast 62 - Millennials: The "Renter" Generation? Feb 06, 2015

Show notes

Coming your way: a new generation of (probably permanent) renters. It’s the millennials, making news once again for the basic contradiction of their lives: better educated than their parents, but simultaneously economically more disadvantaged. And because this generation is both the largest demographic and one of the poorest, their circumstances may mean new opportunities for income property investors.

According to census data reported in a recent article from The Atlantic, the median income for the nation’s youngest members of the workforce lags far behind that of their parents at similar ages and locations. On average, young working adults today earn $2000 less than their parents did.

That’s no surprise given the current economic climate and the large amount of student debt carried by many new and fairly recent college graduates – debt that will likely shadow them for the length of their professional lives. And that’s assuming that they’ll be able to enter the profession they trained for.

Securing solid employment is a challenge for this generation in an era of stagnant job growth and declining demand in key fields. And the picture is even worse for those without a college degree, since job options are even more limited. For college dropouts who ended up without a degree but still have student loans to pay off, things may be even worse.

Still, as the Atlantic points out, comparing today’s young workers with their parents at the same age may be like comparing the stereotypical apples and oranges. It’s a very different world in many ways. The country is a far more diverse place than it was thirty or forty years ago. Some of today’s young workers are the children of immigrant parents who earned very little. In an era of increasing globalization, jobs have been outsourced overseas and technology has made others obsolete. Four-year college degrees can’t always keep ahead of the curve in a fast moving world.

But all these change notwithstanding, by most standards, the millennials are struggling. And that struggle is clearly illustrated in the housing market. To save money, many underemployed young workers are still living with family. Others are sharing dwellings – and rent – with friends.

Of those twenty and thirtysomethings on their own, though, an overwhelming majority is renting dwellings that range from apartments to houses. Citing money concerns and lifestyles, they’re choosing to get married later and postpone having children. And unstable employment situations mean they might need to move to another city for work.

Along with millennial attitudes toward home buying, the housing landscape has changed dramatically since their parents’ day. The housing collapse and the recession that followed brought tighter standards for getting a mortgage, including higher down payments and credit scores. That made it more difficult for young workers with unstable employment to even qualify for a home loan.

Because those standards were actually preventing people from getting loans and buying homes, they’ve relaxed somewhat. The government has asked the Fair Isaac Corporation, purveyors of the famed FICO credit scoring system, to loosen their standards. And amendments to the Qualified Mortgage Rule that took effect in i2014 have relaxed the down payment requirements for some kinds of loans.

Those changes don’t seem to have affected millennials’ interest in home buying much. Another trend might: the surge in rents in many markets around the country. A recent study by online real estate giant Zillow found that on average, renters pay twice as much per month for housing than homeowners. Some industry watchers speculate that the sheer cost of renting could push millennials with the ability to make a down payment to take the plunge into homeownership.

But that depends on factors that, for now, seem to elude the grasp of many in this youngest generation of workers still struggling to find and keep well paying jobs. While their parents may have been able to opt in to the American dream of homeownership at a similar age, today’s millennials are postponing it, perhaps indefinitely.

CW Blogcast 61 - Single Moms Drive Shifts in Rental Housing Jan 29, 2015

Show notes

More than half of American children live with a single mom. That’s the finding of a new study on the changing demographics of American culture – and those numbers, and the economic realities behind them, mean new challenges and opportunities for rental property investors.

The new findings by researchers from Princeton and Harvard aren’t really new. The trend toward single-mother households was first noted in studies dating from the 1960s. And while research into the impact of that rend focused mainly on the outcomes for children, the shift from the traditional two-parent household has implications for a multitude of other sectors – especially rental housing.

Early research into the growing number of households headed by unmarried women with children looked largely at inner-city households, mainly characterized by a black mother receiving public assistance. But as the new studies point out, that’s only one part of the single-mother profile. As home ownership stays out of reach for many struggling Americans, this kind of household is likely to play a major role in shaping the future of the growing rental market for years to come.

Single mother households take many forms, and the only thing they really have in common is that the sole support of the household is an unmarried mother of dependent children. But that mother might be an urban teenager struggling with poverty and a lack of education, a suburban college graduate left to cope after a sudden divorce, or a midlife professional woman who made the choice to have a child without a partner.

These households don’t fit the traditional picture of a solid American family. And for many of these single moms, that picture is completely out of reach. Varied profiles aside, single-mother households tend to be less affluent and less stable than those with two parents – and two incomes.

Single mothers may be struggling to make ends meet in the wake of a divorce or separation from the children’s father. They may have been forced to leave a violent home. They may be juggling a low paying job (or more than one), school and child care with little support. And buying a house may be a virtual impossibility – even with new lower down payments available on mortgages from government lenders like Fannie Mae, Freddie Mac and the Department of Housing and Urban Development.

These households aren’t the only ones feeling the economic pinch – and fueling the demand for rental hosing of all kinds. The pool of renters has seen dramatic growth in the years since the fabled housing collapse of 2008 as homeowners lost their houses to foreclosure. A downturn in employment meant that more people couldn’t qualify for loans or make mortgage payments.

And the shifting demographics of American society created new groups of people who just aren’t interested in home ownership: the millennials, who are struggling with student debt and postponing marriage, and retirees, who are selling homes in favor of smaller dwellings, greater mobility and access to amenities.

All these groups offer both challenges and opportunities for investors working to build wealth with rental properties. Recognizing just who these new renters are and what they want is a key to creating a stable base of long term tenants for a long term ROI.

How can investor/landlords accommodate the growing number of single-mom households? Like those other growing tenant groups the millennials and the seniors, single mothers look for safe housing near schools, daycares and public transportation. Though it’s against fair housing law to target – or shut out – any particular group, property owners can list kid friendly amenities and advertise rentals in appropriate places.

Because many of those households are headed by lower income, typically young mothers, some investors might want to consider working with HUD and other agencies on programs like Section 8 housing, which assures regular rent payment sand a steady stream of tenants. Section 8 waiting lists are long, sometimes taking years, as renters can remain on the rosters indefinitely.

Domestic violence accounts for a large percentage of single mothers forming their own households, too, and domestic violence advocacy services may work with landlords to help clients with move in expenses such as deposits and first and last months’ rent. Letting these agencies know that you’re willing to rent to their clients is another way to create an ongoing tenant stream.

The cultural landscape is constantly shifting. Investors who stay informed and diversify their holdings will be able to take advantage of those changing trends = and build wealth in the new year and beyond. (Featured image:Flickr/wonderworks)

CW Blogcast 60 - Do You Make These 4 Real Estate Investing Mistakes? Jun 20, 2013

Show notes

Jason Hartman maintains that investing in income properties is not a difficult process. Where too many people go wrong is messing up the simple stuff. Today we’d like to point out a few common ways investors accidentally lay waste to their property portfolio and how it could be avoided.

1. Make a Plan: Just because you stumble across a great deal doesn’t mean you should pull the trigger immediately. The time to decide exactly how this new property fits into your larger investment scheme is BEFORE you buy it. Not after. Keep this bit of Hartman wisdom in mind: “A property must make financial sense the day you buy it.” Not some undefined number of years down the road.

2. Forget Get Rich Quick: The idea of getting rich quick is for gamblers, not investors. If you’re a gambler, head for Vegas. True real estate investors follow a methodical, conservative strategy that plays out over years, not months or days. That’s how you get rich. If you can’t wait 5 to 7 years for that first big refi, you’re in the wrong business.

3. Performing Your Own Brain Surgery: No surgeon (hopefully) would dive into such a delicate procedure without years of studying and training. It’s no different with real estate investing. If you think you can walk in with no previous experience and mop the floor with seasoned professionals, you might be in for a rude awakening. A great place to get up to speed on the most effective income property investing techniques is JasonHartman.com. With more than 300 episodes of The Creating Wealth Show podcast posted and almost 2000 blogs, there’s enough real estate knowledge available to make yourself a legitimate expert.

4. Unrealistic Cash Flow Expectations: If you plan to hold your properties and rent them out (a strategy we highly recommend), you’ve got to learn how to predict how much cash flow you’re going to need to cover maintenance expenses. Think of it like this. What if your new income property sits on the market for 3 or 4 months before you can rent it out? During that time you’ll be paying the mortgage, taxes, insurance, advertising costs, and possibly HOA fees. Unless you’re prepared for that negative initial cash flow, an asset can quickly become a liability.

These are just a few areas where the newbie investor can shoot himself or herself in the foot, and all are easily avoided. Perhaps the best advice we can offer is to not get in a hurry. Take your time because there’s always another great deal lurking just around the corner.

Our TOPPODCAST Picks

Follow Us

Stay Connected

The Creating Wealth Show Blogcast

Related Podcasts

Links

Stay Connected