Monopoly, this one board game from Hasbro has done more to test personal relationships than all the therapists combined. Each game starts out with smiles and good natured competition only to end with hard feelings as players stomp away from the table in defeat. Be honest...have you ever seen a game of Monopoly end well? We would bet there are those amongst you who have not played the game in ten years, because your brother-in-law somehow cheated you out of Boardwalk and Park Place! Other than breaking up otherwise strong families the game of Monopoly can also serve another important purpose. Monopoly can also let you know whether or not you are cut out to acquire and manage your own rental properties.
Whether or not to add real estate to your investment portfolio is a question that crosses many of our minds. Everybody has heard a success story from a family member or friend who purchased rental properties, held on to them for ten or twenty years and then sold them for a significant profit. The strategies you use and how you feel when playing the game of Monopoly will provide you with valuable insight regarding whether or not you can be a successful landlord. Basically the game we all hate to love serves as a litmus test to see if we have the right stuff!
The first question you must ask yourself is whether or not you are comfortable making the initial investment to purchase a property or do you feel safer having that cash sitting in the bank? This question is easily answered by the strategy you utilize when playing Monopoly. Do you feel comfortable spending your money to acquire Marvin Gardens or Pacific Place with the possibility of making significantly more money down the road? Or do you like to save the money you accumulate as you go around and around the board, feeling increasingly more secure as you watch your pile of money grow? In order to build you real estate investment portfolio you must understand that you will have to invest money well before you will see any significant payback. As an investor you will have to pay approximately 20% of the property's purchase price to acquire it.
The next question you must ask yourself is whether or not you are able to identify properties, which will make good solid investments or not? Again, this question can be answered by evaluating how you play the game of Monopoly. Do you automatically try to buy into overpriced and overvalued Boardwalk and Park Place or do you recognize the value that is present in acquiring Tennessee Avenue, Illinois Avenue or Marvin Gardens? When investing in real estate the true value is not in the properties that glisten and gleam, but those that may need a little TLC to achieve their former glory. These properties will become the foundation of your real estate portfolio, because you can acquire them at a significant discount. In addition, rental properties will always require upkeep, such as new paint and carpet when renters move out and you must be willing to pay for these out of pocket expenses.
Another lesson that can be learned through the great game of Monopoly is about how to collect the rent. Once you are sharp enough to recognize the value of owning properties such as Baltic and Oriental Avenues another revelation comes upon you. As a landlord when your tenants get paid is also the best time to collect the rent. In order to make a good landlord you need to make sure you feel no pangs of remorse taking the $200.00 they just received for passing "GO" after they land on Connecticut Avenue, which is developed with homes! Monopoly also teaches us the value of written contracts as the cost for residing in a particular property are clearly spelled out on each of those lovely square cards.
Investing in real estate can be an extremely rewarding process, which not only can pay monthly dividends, but also a sizeable payout later on down the road. However, before jumping in you need to make sure that you like the temperature of the water and can adjust to its ever changing currents. If you don't you can end up stomping away from the table, with hard feelings, while vowing never to play again...kind of sounds like a recent game of Monopoly to us!
There is an old joke that goes like this: if you lend your brother-in-law $50 and he never talks to you again, was it worth the investment? We have a sneaky suspicion that many of you are either answering "yes" out loud or even "hell yes" inside your head so that your significant other cannot hear you. There are probably some of you who right now are counting up all of your in-laws and multiplying that number by $50.00 to see how much it would cost to make them all disappear! Throughout our lives the majority of us will be faced with the decision whether or not to loan money to a family member or a friend. Whether you are loaning $50.00 or $50,000 it is extremely important that you weigh the consequences of your decision...then DO NOT DO IT!
A recent survey revealed that 71% of people have loaned money to family members, relatives or friends. Unfortunately this type of largess has led to a lot of hardship and heartache that extends far beyond the pocketbook. This same study revealed that 57% of those surveyed said they have had family relationships or friendships destroyed when the loaned money was never paid back. When you loan money to someone you are not only putting the amount that you give them at risk, but you are also risking the relationship you have with them. We often hear that a good friend is priceless, but let's be honest with each other and admit that an amount as small as $50.00 can ruin a good friendship.
Another study showed that 55% of the time when you loan a family member or a friend $100.00 or more you will never get paid back. When you loan someone money the real question is no longer about whether or not you will be paid back. We already know you would have a better chance of flipping a coin and betting that $100.00 on heads or tails. The real question is whether or not you are going to lose the relationship you have with that person, because you loaned them money. It is an inescapable fact that we as human beings are extremely possessive over our money and what it brings. We like to show off the shiny new car, the brand new house and brag about the vacations spent in exotic locations. It is also an unfortunate truth that the possessiveness we feel about our money is often times transferred to the individual we are loaning it to.
Let us throw this hypothetical situation out there and see how you answer it. You were approached by a family member or a friend asking for a loan and you decided to loan them $1000. It is now three months later and every time you see your brother-in-law and sister at family gatherings your exchanges grow more and more awkward. You stop answering your friend's phone calls, because every time they invite you out to dinner you think, "Are they ever going to pay me back?" When you hear that your nephew is taking a vacation you feel the bitterness gremlin growing inside of you. The reality is that when we loan money to someone we care about we expect that they care about us enough to pay it back. When that does not occur we not only lose the money we loaned, but we also lose the relationship.
So you have made it this far through the article and we can hear you thinking, "These guys are really cold-hearted". We may be, but we are realistically cold-hearted and ones with a solution to this age old dilemma! We have a simple easy to follow rule, which will not only save you hard earned money, but also those supposedly priceless relationships you would rather not lose. The rule goes like this: when a family member or friend asks you for money only give it to them if you can afford to give it to them as a gift. If you are unable or unwilling to give them the amount of money they are asking for as a gift, then you have no reason to be giving them the money at all. The key is that when we give someone a gift we don't expect them to give it back to us and that kills the possessiveness gremlin we each have inside of us. If you cannot afford to do this or are unwilling to do this then you should never, ever loan a family member or a friend your hard earned money.
By following our one simple rule we guarantee that you will never lose a family relationship or a highly valued friendship over a loan gone bad. When you give those you care about a gift, instead of a loan you are showing true compassion and an unconditional respect for the relationship you have. Trust us, Thanksgiving, Christmas and family reunions will become all the more sweet when you are not thinking about sending Guido after one of your family members. As we wrap up, on a side note, if you care about the relationship we have with you as writers and readers we will be more than happy to accept your generous gifts, but never a loan!
Like an unwelcome visitor who will not leave the term short sale has become embedded into real estate vocabulary. In some severely depressed markets short sales account for upwards of 50% of the available homes currently for sale. While we are blessed to live in one of the most stabile real estate markets in the country short sales are alive and well. Short sales tempt potential buyers with the often false promise of a nice home at and unbelievably low price. However, before you dance with this devil, it is extremely important you know the rules he is playing by!
Since it is common for buyers to confuse a "short sale" property with a "foreclosed" property it is imperative we define exactly what a short sale is. To put it simply a short sale property is one that is being sold by the seller for less than what is actually owed to the bank in order to satisfy the existing mortgage. For example, a home owner may owe $250,000 on a home they purchased three years ago. However, due to the declining real estate market that we have all been so fortunate to witness the property currently has a fair market value of only $200,000. While this fact alone would be depressing it really does not come into play unless the owner of a home is being forced to sell their property. If the current owner is stuck in a situation where they must sell their home, but selling the home will not satisfy the outstanding loan and they don't have the assets to make up the difference they are backed into a corner. One of the solutions to their predicament is to approach the financial institution for approval to sell the home for less than the amount that is owed on it.
So far the short sale process has appeared straight forward and logical. However, remember we are dancing with the devil and his promises are rarely what they seem. First, most financial institutions will not assign a negotiator and effectively begin the short sale process until an offer on the property has been received. Pay close attention, because this is where the catch to that great deal occurs. Since the short sale process does not start until an offer has been received the seller will simply accept the first offer that they receive for the property. Since the seller does not have the money to make up the difference between the offered price and what is still owed on mortgage they no longer care about the shortfall. However, the price that the seller has accepted from the buyer has not been accepted by the financial institution that actually holds the mortgage on the property. You see it is the financial institution that has the final say about what price they are willing to accept for a property, not the indebted beleaguered home owner. Thus, regarding the actual purchase price for the home the seller is giving the buyer what actually amounts to a false promise. The home owner is merely a puppet with very little actual power to follow through with the deal that they are agreeing to.
Next, financial institutions process short sales as quickly as a turtle crosses the Mojave Desert. The average short sale takes approximately four to six months to come to a conclusion. Think that is long, one major financial institution currently takes upwards of a year to decide whether or not they will accept the terms of a short sale. Again pay close attention, because this is where the devil is able to make that short sale look like a great deal. Since most buyers are unable to wait six months to a year to hear a yes or a no the pool of potential buyers for a short sale greatly shrinks. In order to attract a buyer who has that kind of flexibility a seller often has to drop the price of their home well below market value...a price that has not been approved by the bank. Since most financial institutions won't even start the short sale process until an offer has been received the price that the seller is accepting for their property is not worth the paper that it is written on.
Once an offer has been accepted by the seller and received by their financial institution the long journey begins. If you remember any part of this article remember this...there is nothing short about a short sale! Using the term short sale is false advertising. It is akin to taking in your wedding ring and finding out it is cubic zirconium. To be honest a short sale should be called a "marathon sale", a "I would rather have a root canal sale" or a "let's go to the opera sale". Over the next six or so months the financial institution will request everything from letters of hardship, to tax returns, to bank statements from the seller, lose all those documents and then request them all over again in order to determine if the seller truly qualifies for short sale status. The financial institution will then send out appraisers to determine the fair market value of the property.
Once the financial institution has gathered all the information that is needed they will make a determination whether or not they will accept the buyer's offer. If the bank does not accept the buyer's initial offer they may counter offer back to the buyer in an effort to come to a mutual agreement. The problem with a short sale is the majority of time the buyer has already decided they are not cut out for it and have moved on. So if the buyer has decided to rescind their offer the seller most likely will find themselves back at step one. If a seller is fortunate the buyer will have stuck around, while also being willing to reach an agreement with the bank regarding the purchase price for the property.
However, just because the bank has agreed to a purchase price for the property the journey is still not over. No, no my friend this journey is long, not short! Next, the bank will negotiate with the owner of the property. Remember the bank not only has to agree to a purchase price with the buyer they also have to come to an agreement with the seller. Home owners attempt a short sale versus a foreclosure, because the short sale does not affect their credit as severely or for as long. In addition the homeowner is hoping the bank will forgive the difference between what their property is selling for and what is owed on the mortgage. Thus, the success all comes down to whether or not the financial institution and the distressed home owner are able to come to an agreement regarding how the short sale will be settled. If they cannot reach an agreement the short sale will fall through.
Once the bank and the buyer have come to terms and the bank and the homeowner have come to terms the short sale finally reaches a successful conclusion. Months and months of frustration and pitfalls have led to the buyer purchasing their home at a great price and the distressed home seller getting themselves out of a bad situation, while minimizing their liability. However, before embarking on the not so short short sale make sure you are prepared to dance with the devil!
It is that time of the year again when children head back to school and parents breathe a sigh of relief. Gone is worrying about how to entertain the kids, where to go for summer vacation and how to keep lil' Johnny off of the X-box 360. As parents we understand that the end of our kids' three month summer is often the beginning of our nine month summer. However, as we looked over our high school son's course schedule we were struck by one simple fact. Courses such as Spanish, Geometry, Wood Shop, Physical Education, English and Drama were all present. However, nowhere in the course catalogue was there a class teaching our kids the basics of how to handle their financial lives.
Over and over, like a broken record we as parents are told that the sooner we expose our children to things such as reading, music and mathematics the greater their chances are at success in school. While this may definitely be true it raises the question of about why we are not taking the same approach to our children's financial lives. Don't get us wrong, we are great proponents of education and hold several college degrees. However, we are also smart enough to know that 90% of what we learned in high school and college has been long forgotten and are of no use in our daily lives. Let's get real, when was the last time you were thankful for that good old Trigonometry class or relied upon the three years of French you took? It is time to place a focus on the elements that our children will utilize most throughout their lives.
Foreclosures are at an all time high, short sales abound, unemployment is hovering near 10% or higher and our great nation is known for its excessive spending, not it's excessive saving. Turn on the news and you are sure to hear a commentator remarking about the high level of credit card debt that most Americans carry or the woeful lack of savings. Financial gurus such as Dave Ramsey, Clark Howard and Suze Orman regularly counsel grown adults on how to fix the financial messes they have found themselves in. The problem is that shutting the barn door after the horses have escaped is about a futile as trying to unring a bell or trying not to use clichés! During our first time home buyer's classes we routinely hear from participants how thankful they are that they now have the knowledge to confidently start the home buying process. Guess what? The big bad home buying process is no longer so scary when you know the way and the same can be accomplished with our financial lives.
Financial education must begin in middle school so our kids learn how to manage their allowances and then the paychecks they make from their high school jobs. It is so very important that we tell our money where to go rather than letting it walk away on its own. A financial class should be taught every year from sixth grade on, with each year bringing increased knowledge. We teach subjects such as math, English, and social studies this way, yet neglect something that carries much more importance. As adults we make financial decisions every day, but our education system pushes us out into the world ill prepared. Unfortunately, our financial education is left up to the school of hard knocks.
One of the main contributing factors to the collapse of our real estate market and the current recession we are all suffering through was a basic lack of financial knowledge. Ill informed Americans were racking up too much credit card debt, buying homes that cost too much and using risky loan products in order to make it work. With just a little financial knowledge we believe that the current economic woes could have been avoided. We become extremely powerful once we learn how to balance a checkbook, how to put away savings each month, how to invest in mutual funds and bonds and how to take care of our financial future. Credit cards would not have been maxed out, homes that could not be afforded would not have been purchased and home buyers would not have been taken in by risky loan products, which sacrificed their future.
Please, let us not fail to learn the lessons from our downtrodden economy and depressed real estate market. Eventually, things will improve, but will we be no better off than we were before? By the way, we hear those of you who are saying these skills that should be taught at home. However, it is impossible for an adult who never learned the basics steps to financial success to then turn around and teach their children the same. Our education system can no longer afford to ignore teaching the skills that are so important to the success of our future and our children's' futures. Can we get a witness?!
As real estate agents we often lecture our clients about keeping their homes in good condition. We relentlessly talk about routine maintenance such as cleaning the gutters, painting and annual furnace check-ups. Next, we tell our clients about planning for the future and to have a plan for replacing the roof, remodeling that rust orange kitchen or ripping up the lime green shag carpet that was so cool back in grandma's day. However, before our clients ever purchase a home they first need to make sure their financial house has been built upon a good foundation. When attempting to build your financial house one of the biggest obstacles that must be overcome are the differing viewpoints between significant others.
While it is tempting to summarize this issue by saying, "Let the battle of the sexes begin!" that would simply be an injustice. It would be way too easy to fall into the stereotypes of women as uncontrolled spenders, while men are hardworking savers. However, the truth is that men and women are just as likely to be savers are they to be spenders. For every man who gripes about how much his wife spends on clothes there is a wife who gripes about how much her husband spends on power tools! So instead let's put it this way, "Let the battle between the savers and the spenders begin!"
Talking about finances with your significant other can be as mine strewn as debating differing political views. However, it is important to remember that a house divided cannot stand and trust us your financial house will fall if the two of you are not on the same page. The first step to building a great financial foundation is communication. You would be extremely worried if you saw blindfolded construction workers building your new dream home. However, equally as mystifying couples will go decades without ever talking about their financial views, plans and goals.
So here is the challenge. Within in the next seven days set aside a time to talk to your spouse about your financial future. Put the kids to bed early, turn off the cell phones and dvr your favorite television shows. Next, choose a comfortable couch or the kitchen table to sit down so you can have a honest and open discussing regarding your financial future. Start small and find out how they view your spending habits and just as importantly view their spending habits. On a side note, check your insecurities at the door and listen with an open heart and an open mind. Find out what is important to your spouse...do they want to buy a home, start a small business, or put the kids through college? Before you end the conversation ask your significant other what they see retirement as being like, where they would like to live, what they would like to do and where they would like to travel. Before wrapping up your discussion for the night make sure you schedule another meeting for a week later to pick up where you left off.
Outside of Extreme Makeover: Home Edition a good solid house is built one piece at a time, one day at a time, month after month. The same is also true when building your financial house. This first conversation should just be one of many ongoing conversations regarding building your financial "dream" home. You must follow a life-long financial blueprint in order to achieve financial independence. Make no mistake about it, this blueprint will require sacrifice and dedication. To quote one of our favorite financial advisors by the name of Dave Ramsey, "Live like no one else now so you can live like no one else later!"
Owners, Designated and Managing Brokers of Link Real Estate Group. Serving Olympia, Lacey, Tumwater, Yelm & the surrounding WA areas. For more information, visit www.LinkRealEstateGroup.com.
ActiveRain Corp. is not responsible for the accuracy of the site's content (which is written by members of the ActiveRain Real Estate Network) and does not endorse the views of the real estate agents, mortgage brokers, and others listed here.
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