Saturday 17 May 2008

Real estate 'university'

I've done moderately well with real estate investing over the years. I bought a vacant 2.5 acre block of land at Winmalee in the blue mountains in the early 80's which more than doubled in a few years. I originally bought it with the intention to build a house there, as I fancied the idea of living on a large block with some privacy, close to the Blue Mountains national park. However, I sold the block after a few years when I realised that it was just too far to commute from there to work every day. I wouldn't be able to live there until retirement, so I had to either borrow and build a couple of duplex townhouses on the block to rent out, or take the profit and invest elsewhere. In the end I decided it was too far out of town to even work as a self-managed rental property, so I sold out.

My next real estate investment was less successful - I bought a "cheap" rental property one of the cheapest suburbs in Western Sydney. My theory at the time was that top-end properties were rapidly becoming unaffordable compared to average wages, whereas houses at the bottom end could still appreciate and remain within reach of the typical first-time homeowner. In practice prices stagnated for several years and I had to make innumerable trips to the property and spend weekends renovating the property back to rentable standard as a series of tenants moved out (usually without notice and owing more back rent than they'd paid in rental bond). After I got married I sold the property (for slightly less than I paid, although the rental yield was more than the interest costs, so I probably broke even overall) so I could "go halves" in purchasing a rental property close to home with DW. That property has doubled in price since we bought it eight years ago, and rent has been more than interest costs for several years (although we put in a large deposit when buying the property, so the opportunity cost of those funds needs to be considered).

Since then we've also bought our own home, which is more of a lifestyle expense than an investment, with interest costs on the mortgage being considerably more than rent for equivalent accommodation. Whether or not any capital gains will make this "investment" pay off remains to be seen.

I think we're fairly typical "mom and dad" real estate investors, in that we haven't borrowed more than our salary income can service, and haven't used increased equity to immediately go out and buy additional properties using "liar loans" (no doc loans, or ones where we claim to be "owner occupiers" in order to get to get financing for rental property purchases). We're probably also fairly typical in that we've approached real estate investing as amateurs - often evaluating prospective properties on the basis of a quick visual inspection and biased by our own preferences (would WE like to live here?) when looking at possible rental properties.

This probably isn't the best way to approach what are, after all, very large, illiquid investments ;)

The problem though, is how to approach real estate investing in a more "professional" manner? There are innumerable books out there purporting to tell you how make a fortune from real estate investing, but many of those are based on 'rags to riches' stories that are based largely on luck (market timing) and using massive amounts of leverage (that would have produced very different results in less favourable market conditions). Many of these books are really just teasers to attract people to investments seminars that are now the main source of the author's income.

It would be nice to be able to get a proper "education" in real estate investing, but traditional universities don't offer a course in "Real Estate Investing 101". Nouveau Riche has an interesting concept in the form of Nouveau Riche University - a website that provides access to a home study course in real estate investing. I've no idea if the course is any good (the website itself is typically glitzy and definitely not your typical educational site - just look at the graphic below which accompanied the announcement of a new 'Independent National Senior Advisor') but it might be a less expensive lesson in real estate investing than the usual method of just diving straight in and buying a property. The 15-volume course costs $300 per month (one volume per month, so total cost is $4,500), and you can cancel if you don't find the material useful. You can get a $700 discount by buying the entire set in one hit, but seems a bit high-risk to me. The volumes cover the basics of real estate investing such as selecting properties, arranging financing and taxation issues. But they also cover topics such as "Flippin’ Explosion" which they call
"the Fastest Growing Trend in Real Estate" which I think isn't in sync with the current US real estate environment ;)

Anyhow, anyone in the US thinking of investing in real estate might want to check out the Nouveau Riche website for themselves. Just be careful that you don't end up being funnelled into buying an over-priced real estate "bargain" that is being off-loaded at a time of market weakness to unsuspecting "students". As the old saying goes, "if it looks too good to be true, it probably is", although like all bursting investment bubbles, the US real estate markets will probably provide opportunities for great buys when the correction finally bottoms out.

to Enough Wealth
. Copyright 2006-2008


mOOm said...

Casey Serin was involved with this. Just the name "Nouveau Riche" should tell you all you need to know ;)

Anonymous said...

NRU is a scam. A pyramid scheme dressed up as courseware.