I thought this was an AMAZING article, and I’m going to read this book – totally excited about it. From the Author who brought you “The Millionaire Next Door” and “The Millionaire Mind” brings you the new book, “Stop Acting Rich.” which examines the psychology of how most people perceive “wealth.”  As Rob Minton, the author of the article put it:

“… that most people look rich because they live in big homes or drive expensive cars, but when examined closely, they have accumulated very low levels of wealth. In other words, they wear big hats but have no cattle….”

Looking around, I’ve found it to be very true.  Most people are concerned about appearances and when it comes down to brass tacks, haven’t done anything to build wealth, but have worked excruciatingly hard on building the appearance of wealth. Now don’t get me wrong… it’s fine to have nice things, but the point of the article is that most who have accumulated great wealth — prioritize investment OVER possessions. I was BLOWN away by this excerpt:

“If you examine homes by value from the lowest to the highest, you would find that as the value of the homes increases, so does the proportion of people who are living well above their means.”

Now, I don’t know if that’s 100% true in EVERY market but I sat down after reading this and asked my self… as a Real Estate Professional – I HELP people make these large decisions for themselves – what can I do to help, and what direction is my advice pointing my home buyers?

Good question, right?

I thought so…  Back to the article, is “Buying the Worst House on the Best Street sound advice?”  In Real Estate there is TONS of opportunity in UGLY (and I mean Ugly) houses in desirable neighborhoods.   The question one must examine is this…. am I making this buying decision to impress my friends or increase my lifetime wealth.  You CAN do both, but both perspectives have totally different motivations. If you intend to increase your wealth, you must look at dollars and cents.

I think it’s smart to buy a fixer in an area you desire — so long as you’re not extending yourself beyond reasonable limits.  Now I’m NOT a financial planner, but I am an extremely conservative spender / investor… You have MORE ownership expenses in a home than simply your mortgage.  You need to be able to afford to maintain and improve your home if you want to make money with it.  Simply owning a home and sitting on it will not make you the money you need in this current market.

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As many are not aware, there is/was an obscure requirement affecting FHA financed homes and seasoning.  Simply put, an investor must have owned the home a minimum 90 days before conveying the home to a buyer with an FHA insured loan.

Not any more, well, at least temporarily.

Why is this a big deal?  According to FHA Loan Pros, FHA purchases increased by 181% over 2007 to 2008 (pending statistics for 2009 still…).  This is a HUGE majority of the market, and with incentives for the First Time Home Buyer Tax Credit – now is the time to sell.

The previous 90 day restriction, according to some, required that an FHA buyer not even enter into a purchase contract prior to the 90 days (this was one underwriter’s interpretation).  My buyer had to wait until the 90 day time period has passed to write an offer and submit it to underwriting.  I feel the underwriter was a bit rigid on this, and we could have looked elsewhere, but I found similar restrictions at several other banks.  So we waited. 

With the temporary reprieve on the seasoning rule, I look forward to showing my FHA buyers new flips on the market knowing we can successfully write offers and negotiate terms on the property without worry of seasoning requirements.   I belive this will have a big impact on inventory and is a very WELCOME  act of lieniency for investors who’s practices have been severely limited through current underwriting requirements and financing hurdles.  Opening up the doors for investors to make money will move properties, create jobs and get us on the road to recovery.  

I sincerely hope that down the road (hopefully soon) new lieniencies will be given to investors by means of underwriting.  A recent quote I got for an investor cited 25% loan to value (not a big deal), but a 3 points up front for non-owner-occupied which I thought was crazy.  This is a kind of market where if you can afford to buy another residence whether it be a rental, vacation property or land, you should (case in point, I just sold a bank owned vacation condo 2 bed 1 bath to a buyer for $39,000 — move in ready).  Home buyers should not be nickeled and dimed for buying inventory and building their portfolio - just my opinion.

Over 2010 I predict the gates will open up slightly for investors and homebuyers.  Bank policy (underwriting and investor backings) have affects on how fast inventory can move, I’m all about being rational and careful to prevent what we just went through the past 2-3 years.  Money changing hands will bring us out and up!

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