I’ve run across several interesting reads in the past week, hopefully something here will pique your interest.
Danish Companies Seek to Hire, but Everyone’s Already Working – although not about real estate I found this article interesting because I never realized there could be a downside to low unemployment. Specifically of interest was “During an economic boom a decade ago, joblessness fell as low as 2.4 percent, igniting an unsustainable spiral of higher wages and prices that the government desperately wants to avoid today.” I did a little digging on the subject of “what is an ideal level of unemployment” and it seems to be a highly debated topic. Since I’m not an economist or policy maker, I’ll leave this to people more qualified then I.
3 Risks and Drawbacks of Using Home Equity When Investing – was another good read this week. The idea of using home equity to fund investing is a topic I hear about weekly. I can attest to the benefits of doing this as I have done it myself. I agree with the 3 main points of the article that the risks of investing this way are over-leveraging yourself, reduced cash flow and the concern over rates adjusting later. Personally I am not a fan of investing with no cash in the deal. I’m just not. I think you should own part of your investment. If you are a first time investor with little to no cash, using home equity might not be a good idea. If you are fortunate enough to own a substantial amount of your home you can eliminate many of these risks. Say you want to purchase a $200,000 4-family and you have $30,000 in cash. If you have the equity to do it, you can cash-out refinance your home for the $170,000 balance needed to close your deal. Not everyone likes this idea (my wife included). For peace of mind many folks want to own as much of their own home as possible. But, the benefit of a lower rate (usually a mortgage on your primary residents gives you the lowest rates available) and a potentially faster closing might be worth looking into.
My last recommendation for reading this week is Why I’ll Never Fix and Flip Houses Again – an interesting read. I too am a buy and hold investor. I particularly agree with the paragraph about how there is a lot of speculation involved in flipping. Also, my passion in life isn’t getting my hands dirty. Some people have the DIY attitude and can made a great profit flipping. Once you start hiring stuff out, getting involved with multiple contractors with competing work loads and schedules … cost overruns start to erode profits. I’m also not a fan of playing a game of musical chairs – when the music stops (i.e. home values stop rising) I still want a chair to sit in – buy and hold provides me with this safety net.
Have a great week!