The average homebuyer is worried about losing money on their largest investment.
The real estate market goes through cycles of ups and downs, just like every other market in the world.  The latest decline over the past few years has buyers concerned about the future of real estate, with many fearful of losing money on their biggest investment.  Unfortunately, the average buyer does have a lot to worry about, because they are often paying above full price for their homes!  Imagine buying a home for $200k.  After rolling closings costs into the loan, you now owe nearly 206k on a 200k home.  If you are like the average homeowner, you will sell within 7 years, and the sale of your home will put you back another 6% (or $12k) for real estate agents' fees.  At that time you will need somewhere else to live, and if you move in to another home, you would start the cycle over again!  Without some pretty healthy appreciation, the average home buyer has almost no chance at making money on their home.  And, appreciation, at least in the way we are taught to think of it, doesn't really exist. 

 

Appreciation does not really exist.
The above statement may sound ridiculous, but is in fact true.  Lets examine a real estate transaction in detail.  Imagine you bought a home in 1995 for $100k, and then sold it in 2003 for $200k.  Are you $100k richer?  You could be, if you decide to be homeless!  Let's say that you don't want to live on the streets.  You must find a home, and odds are that you need one similar to your last one, but in a different location.  In your new home search you find that the average home to replace your old home will cost you $200k.  That means that for the same qualities (location, square footage, bedrooms/bathrooms, amenities, etc.) you paid $100k for back in 1995, you'll have to pay $200k for in 2003.  With your new home you now have two choices: to take your 100k and put it into your new home, and have the same level of debt you previously had in your old home, ($100k) or you can take out the $100k and spend it on cars, trips, or college tuition, and take on an additional 100k in debt, now owing $200k on your home. It only comes down to having more or less debt.  Neither choice gives you money in your pocket without debt replacing it. The only real financial benefit to owning a home the traditional way is that you have a hedge against higher prices in the future: whereas you only owe $100k on your home, a first-time homebuyer will owe $200k.  Change the word appreciation to debt inflation.  The only real winners in the traditional real estate transaction are the banks who have homeowners in more and more debt, and the governments who tax homes based on their inflated values.

How to make a good investment.
Fortunately, there are ways to make your home a good investment.  There are only three real ways to make money from owning a home: buy it at a discount to market value,  increase its value through improvements, or rent it out.  That's it.  If you pay a total of $160k for a $200k home, you have $40k of actual equity, money in your pocket, when you sell.  You would have literally bought that home at a 20% discount!  Then simply repeat the process, each time taking on the same amount of debt ($160k), but pocketing the difference ($40k less buying/selling fees)  It is not hard to make improvements on a home.  Many "investors" are just average people who buy run-down properties, fix them up, and sell them for a profit.  Quite often, the improvements are just "cosmetic"-new appliances, fresh paint and carpet.  The bigger fixes-plumbing, electricity, construction, or demolition are almost always hired out.  Be sure to have a complete inspection before buying a "fixer-upper," you don't want to bite off more than you can chew!  That being said, there are always ways to improve virtually every home out there, and many improvements can pay you handsomely.  Another way to make money from owning a home is to rent part or all of it out, having other people pay off your home for you. Renters create actual wealth for you in the forms of monthly cash flow, equity growth, and even tax benefits!  To really boost your profits, consider selling your investment home FSBO or with a discounted real estate broker.  There is absolutely no reason to give away 6% of your equity.  If, however, you do decide to use a 6% broker, remember to factor that cost into your purchase price, to achieve the same profit margin.  By using any of the three above methods, you too can make your home work for you!

We can help you find great investments, with no cost to you!
We are real estate agents and investors who work with homeowners, lenders, and banks, to find and offer our clients the best real estate for their money.  If you want to begin creating actual wealth from either your own home, or from investment properties, then you should contact us.  We are a free and valuable resource for those looking to make sound real estate decisions, and we are here to help!

 

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