Before I get into the 10 success secrets, let’s talk about real estate and what’s going on in the market today. This is from an article I just wrote a couple weeks ago about what are going on in the real estate business.
All of you are aware of the tremendous impact that the financial crisis has had on the real estate market. The sales have plummeted. New home sales have really fallen off a cliff. The no-money down mortgages are a thing of the past. It will probably be our lifetime before we see them again.
Current Changes in the Market
There are tremendous changes going on in the real estate market. One of the major things that’s happening right now is that the homeowner percentage, that is the percentage of people that own a home hit a peak in 2005 at about 70%.
This took an extraordinary effort to get it from the low 60% to 70%, and part of the process or part of the mistakes we’ve made as a country was trying to force it up there probably artificially. We used a lot of things; all kinds of financing gimmicks, no-money down, 3% money down and all of those kinds of things to encourage home ownership.
People that really had no right owning a home, in some cases had no income or very little income or were unemployed, were getting mortgages, where certainly in the past history that would not have been the case.
The theory was that everybody believed that home ownership was good for our country and good for our local communities and homeowners take care of the neighborhood better and all of that. Probably some of that is true, but in the end, a homeowner that can’t afford the mortgage doesn’t really help them or the country or the mortgage lenders or anybody really.
We paid a severe price for it. That process is unwinding currently. We are currently down to about 67% home ownership in this country from a peak of 70%. That process will continue to unwind for the next couple years. Projections are that we’ll probably end up in the low 60% again and that means we’re going to go from, let’s say, 70 down to 62 or 63%.
Essentially, 7% of this country will go from a homeowner to a renter. So what does that mean for you guys as investors? It means that, 1) 7% means that 23 million renters will be coming into this marketplace over the next five to 10 years. 23 million people are going to become renters. That’s a huge number, so understand that people that are involved in the real estate business in terms of providing rental housing or managing rental housing are going to be at the right place.
This is where the market is. We are out in front of the market. The market is coming to us. So if you are an investor and you want to own rental homes, you’ll do very well over the next probably 10, 15, 20 years. There may be some headaches the next six months to a year. There’s still a lot of turbulence going on.
Once things finally settle down, the trend going forward will be quite impressive over the next couple years. Maybe some of you are familiar with, I did a call back sometime in the spring where I laid out a case of why real estate investing is one of the really outstanding places to be because of this trend, but also just because of population trends that are occurring in this country.
