It looks like the Republicans are going to pass major tax legislation and today Senator Marco Rubio admitted they will have to cut Social Security and Medicare to  help fill in the gap (article here).  So for anyone who  thinks that Social Security was going support them in retirement is looking at a dismal future. The maximum amount you can receive even before these cuts will barely  cover the cost of rent today in many places in California let alone all of the other items you will need in retirement like food,  medicine, doctors appointments etc. 

Now is the time to tighten your belt straps and save some money to buy a 2-4 unit property. As I have said may times on this site...one 2-4 unit building will save your life when you are older. All you need to save is 3.5% for the down payment. You can get a credit that will pay for your closing costs from the lender by taking a slightly higher rate. The 3.5% can also be a gift from parents or another family member if you don't have the cash. There is no reason not to do this  sooner rather than later if you do not own a property yet.

The beauty of a 2-4 unit property is that the tenants will pay for a good portion of your mortgage every month. Then when the building is paid off in 20-30 years you will have a free place to live and also income from the other units.  You will not have this if you plan on relying on Social Security.  You won't have much if you plan on relying on Social Security. And after they get done with their cuts  you might not have anything.

Better to be safe not sorry. So what do ya say? Let's put down the Starbucks,  put away the credit cards and  start making plans to be rich in real estate.

 Yes...California real estate is expensive...again. It always does this...it goes up then down then back up higher than it was before it went down. So here we are again, back up  above where prices were before the crash.

So if you didn't take advantage of buying after the crash, and have watched for the past 7 years like many, as prices have made their way back up what do you do now? Many people are discouraged and frozen in a place of inaction, wondering what they should do and what is coming next.

Will prices go down? Maybe.
Will prices keep going up? Maybe

There is some instability in our government. That instability is making some feel they should hold off from buying until they see what is going to happen, I understand. But...rates are still very low and it is your payment that you need to be concerned about as much, if not more, than the price of the property. Real estate prices are about income and supply and demand. If we don't have a huge spike in unemployment or lose some major industry in California then the demand for property is there. Many people want to live in California and the demand is usually quite high...there is a shortage of housing in many parts of the state. We have land constraints here that keep our inventory limited. We have an ocean to one side, ranges of mountains and lots of  government land. All of these factors limit how much property there is and as people keep coming the supply tightens.

It is your monthly mortgage payment that drives everything.  If you can afford the payment, and if you hold onto the property (as you should hold onto every property you buy) then now is the time to buy. It's always a good time to buy as long as you can afford the payment. Regardless of what happens to the market, if prices go down, then you keep making the payment just like you keep paying your rent. Eventually the house will be paid off and if you are smart enough to buy a 2-4 unit property, then the rent from the other units will keep your monthly outlay low and will help you pay off the property...and in 30 years or less you will have a piece of real estate that you own free and clear. 

If you wait for conditions to be  perfect you might be waiting for a long time. I remember some clients of mine back in 2009 wanted to wait to buy as they thought prices would continue going down  and guess what...they waited too long and are still renting today. Once everyone realized the prices had hit bottom, buyers came out of the woodwork and started buying...quickly driving prices up. Once  prices started rising there was a lot of competition and many people got frustrated and didn't buy. If my clients had bought back in 2009, or 2010 or 2011 or 2012 or even later...they would be sitting on hundreds of thousands of dollars in equity now but they wanted conditions to be perfect and in the end they got nothing.

Don't end up with nothing in the end. Owning property will save you. If you continue renting you will still have a rental payment in 30 years. If you buy, you will pay off your loan in 30 years (hopefully less) and then only have to pay for property tax and insurance every year. You will own an asset worth hundreds of thousands of dollars. If you buy now on a fixed rate your payment will stay the same for 30 years and then be finished. I can pretty much guarantee that your rent will go up over the next 30 years and you will have to keep paying rent until the day you die.

Ran across this article today "$80,000 Salary? 7 Cities Where That's Not Enough To Buy  A Home"     I understand their methodology and they are specifically talking about single family residences. I also understand that they have to write semi shocking headlines to get you to click on it...so we can see how difficult it is out there. But, most articles like this one, talk about single family residences. What very few people (even in my business)  realize is that you can more readily afford a 2-4 unit property than a single family residence and buying a 2-4 unit is the best way to start owning real estate.

When you start out with a 2-4 unit property even though the price tag is typically higher (which results in a higher mortgage payment), you will receive rent from the other 1-3 units which will offset a large portion, or possibly all  of the mortgage payment.

In addition...the 20% down payment so often mentioned in the media  is not accurate. There is and has always been 3.5% down payment option on FHA even for a 2-4 unit property. Now when you put less than 20% down on a property, you have to pay mortgage insurance. Mortgage insurance is an insurance policy you pay that benefits the bank in case you default. If you buy a 2-4 unit property with 3.5% down, even though you will pay for  mortgage insurance those beautiful rents from the other units will help cover that.

​In 1901, the average U.S. family devoted 79.8 percent of its spending to  necessities (food, clothing and housing). By 2002–03, spending on necessities had been reduced substantially to 50.1 percent.  Since American families have been paying substantially less for necessities as time has gone  on where has the extra money gone?

In 1901, the average U.S. family could allocate only 20.2 percent for discretionary spending while in 2002-2003 they could allocate 49.9 percent  of total income for a variety of discretionary consumer goods and services... a 30% increase!

What happened was Americans started buying lots of stuff they did not need to exist.

In the 21st century, households throughout the country have purchased multiple computers, televisions, iPods, and phones. Americans have bought vacation homes, boats and expensive cars. Children go to summer camps, parents attended sporting events and theatrical and musical performances.  We've joined health & country clubs and taken multiple vacations. 

But just because something exists doesn't mean we have to go out and buy it.  You can see by the chart below that over time our savings have decreased. 
​
                                                                                 American's Personal Savings Rate 1959-2015

Many studies report that 69% of Americans have less than $1000 in savings. Today there was another article on this subject (see here) What is it that drives the majority of Americans to spend everything they have and more. I have some theories.

 1.  Keeping Up With The Jones (or Kardashian's)  What is modeled to us daily are people living a life of excess. Back in 1950 or even 1980 we didn't have channel after channel of television broadcasting people behaving badly and throwing money around. We  weren't assaulted  daily with stories of "famous" people spending thousands  in a night club, on a new car or on a  beach getaway with their new lover. 

What most people don't understand is that famous doesn't mean rich. Over the years in the mortgage business in Los Angeles I have been  privy to thousands of people's  financial details...many of them famous. Many of the jobs that make people famous are temporary, giving them short spurts of money followed by long periods of unemployment...and many never get high paying work in the entertainment field again. And those on reality shows aren't getting paid much at all...it's rarely reality and more about fantasy. But what is modeled to the world by this sector is a life of endless travel &  shopping with Starbucks in hand...not one of them has to trudge to an office in the morning. It all looks so fantastic on the pages of a magazine but it rarely is.

2. Easy access to credit. Back in 1901 people didn't carry credit cards. You could only buy what you had the money to buy, thus you were prevented from getting into debt. You had to save your money over time for big purchases. In 2015  the average household credit card debt was reported to be $15,675. Americans spend more than they earn. This does not bode well for a lavish retirement.

3. We're removed from our money. Unlike back in 1901...today people rarely carry cash. Instead you hold your phone up to the scanner at Starbucks, swipe your card all over town or push a button for one click ordering on Amazon. We aren't handing over cash thus the tendency to overspend  is much greater.  It  doesn't even seem like you're spending money when you swipe or click. Most people aren't keeping track of how much they spend or where there money is going and they're going broke one unnecessary purchase at a time.
​
At some point we need to take responsibility for our future and  begin to spend less than we earn and invest the surplus...this does not mean we  suffer. Many people live big, fun lives without spending everything they earn. If you're one of the millions of Americans with no savings how are you planning on funding your retirement which is basically a permanent vacation? If today you choose to put a vacation on your credit card there is no way you will be able to afford your upcoming 20 year  vacation (7300 days). It's time to get real and devise a plan. All of those vacations,  lattes, gadgets and dinners out will only leave you with fleeting feelings of joy...then later you'll be left with the permanent feeling of a cold hard sidewalk as you lay down to sleep. 

 I hate to be the bearer of bad news but  if you think you have a juicy pension in your future don't count on it. Leaving someone else in charge of your financial future today is a huge risk...even if it is the  Federal  or State Government.

Just Google "Pensions"  and you will find loads of stories on how woefully underfunded they are. CalPERS...the Nation's largest pension fund  might soon be able to reallocate how much they pay employees (see article here) . President Elect Donald Trump has plans for Government workers and their pensions (see article here).  And Dallas Texas might be on the verge of bankruptcy due to it's Texas sized pension deficit (see article here) .

Psychologist Nathanial Branden  has a famous quote from his book  Six Pillars Of Self Esteem,  "No One Is Coming To Save You". This is absolutely true for our financial future today more than any time in our modern history. If you are not taking your retirement into your own hands you will have no one to blame when your savings come up short.

I heard a great saying once from a baseball player..."Take the umpire out of the game." He was saying...score so many runs so  if the umpire makes bad calls that go against you it won't affect the outcome...you'll still  win. This is absolutely true for your  future. Create so much income for yourself so that if Social Security and your pension or that inheritance you are hoping for  never materialize it won't affect you...you had a plan B.

The best way I know how to create money for your future is to own rental property.  Rental property is like an ATM machine that spits out money every month. Once the loan is paid off you get to keep the majority of that money. One little building will save you, two, three or more will give you a lot more options when you retire. Options are what we want!

Anyone can do this. Anyone can buy a rental property...you don't have to be rich or have a high paying job. I have lots of stories about regular people who bought a lot of property over time...one at at time. The value and rents of their properties increased bit by bit yielding them a very nice income once the loans were gone.

You can start by using a low down payment and buying a 2-4 unit to live in...buying an owner occupied property requires a much smaller down payment. Then after you have saved some more money, you can buy another one...save some more...buy another.  It's not rocket science  and this is an investment that gives you total control. You pick where you buy, you pick your tenants...you aren't leaving this up to anyone else.

According to Time/Money in 2015 - 69% of American's had less than $1000 in savings yet the airplanes are full every time I fly and the restaurants are packed as I drive down the street. People are living beyond their means, spending and not saving and at some point we need to ask ourselves if that vacation and  all that eating out is  going to get us anything other than some temporary gratification. Save yourself first...buy a property then take that vacation. 

 Over the years I have been to a few real estate seminars to see what they were teaching.  Everyone has their method  they swear by, and for a few thousand dollars they can teach you how to get rich like they did.  I remember one time watching as people ran to the back of the hotel ballroom, waiving their credit cards in the air in a panic to buy the get rich in real estate kit at that "Special...Reduced For Just The Next 10 Minutes Price!".  Unfortunately most of those books and DVD's brimming with the secret method to get rich in real estate so you can tell your boss to shove it,  will end up never leaving the back seat of your car. Or...if you do happen to watch the DVD's, the  methods to get rich in real estate are so time consuming they are hard for most people with a job and/or a family to have the time to implement...they are basically a second full time job.

But good news. You...yes you...can get "rich" in real estate all on your own without any books, DVD's or expensive seminars.  All you need are mentors and there are plenty in every town in this country. I have had many real estate mentors in my life. You might be thinking...why would someone want to help me learn how to  invest in real estate so I can grow my wealth.  Because most people are good. Most people who have achieved a level of success want to help others do the same.  No one can buy all the real estate themselves so why not help someone else understand how it all works? Pay it forward.  

You only need to add the following two or three people to your life:

1. A mortgage  broker who owns rental property.
2. A real estate agent who owns rental property.
3. A third person who owns rental property and is willing to be your mentor. 

The first two are easy to find. Just ask around town for referrals for a good real estate agent and  mortgage person who own rental property. If you don't get any names call various real estate and mortgage offices and speak to the managers and ask them to refer you to an agent who owns property. This is who you want to work with. Ask to meet with them so they can help you get your plan together. Tell them you are interested in getting started  but also want to keep your monthly expenses down. Ask about starting with a 2-4 unit property that you will live in...they will help you qualify for the loan and find that property.

1. The mortgage broker is your first stop. They will tell you what you need to do to qualify to buy your first property.  They will have you gather your income information, run your credit and crunch the numbers.  Do not assume anything about your credit or income. Meet with this person and let them tell you if you can buy now or what you will need to do to get ready to buy in the future.

I have been in the mortgage business for over 30 years and it pains me when people are afraid to talk with me. They'll say "I have to fix my credit issues first" or "I have to pay off some bills first" You do not know if you need to fix or pay off anything. The mortgage rules are so vast and complicated you must meet with a professional so they can tell you if you qualify. You cannot know from hearsay or a few articles online if you would or would not qualify to buy a house. Meeting with a mortgage person is free...it doesn't cost a dime. We qualify people all day long - it's part of the job. If the one you meet with first isn't super helpful...find another one.

2. The real estate agent is your next stop. After  you have been pre qualified by your mortgage broker, you then find the right real estate agent to help you find the right house. I would never try to look for a house on my own and I have been a licensed real estate agent for years... but I  do  not sell real estate full time so  I always use a full time, professional agent.  Using a real estate agent is FREE when you are buying a house. The agent earns a commission paid by the seller after you buy. The agent will look out for you. They will help you choose a good neighborhood, explain the rental market, which properties are in the best school districts, etc. You need guidance.

Try to find an agent that owns rental property so they can offer you help on owning a rental property - working with tenants,  rent control,  specific laws, etc.  Meet with prospective agents, tell them what you want to do...own a few properties  over time. Make sure they know the 2-4 unit market well, not just the single family market.  Meet with as many as you want so you can build your team....BUT once you have selected an agent use that person. Do not run around town with multiple agents having all of them show you property. This is a commission business so if someone is going to spend their time showing you property respect that and use one person. 

3.  Find a mentor who owns rental property. 

This is not  a must before you buy your first property but  a seasoned mentor who has years of experience is a great asset to have at some point on your journey. I have learned A LOT from mentors and still do.  Your agent and or mortgage person can also be your mentors if they own property. You will find your mentors over time organically. Once you are in the business of owning  property you will naturally meet others who also own property. 

You will find your own system over time. You will learn the style of property that works best for you - that is the most comfortable for you to own given the amount of time you have.  Owning real estate does make you wealthy over time  but it takes time and some attention. Put your portfolio together slowly as you have the time and money. The last thing you want to do is create a second full time job with some crazy system that costs thousands of dollars!

​

  I am originally from Philadelphia and after a        recent visit home I started looking into the                prices to buy in downtown. Downtown
Philly  has changed greatly since I left  many moons ago....it's vibrant, a great restaurant town and also still affordable to get started owning property even though it is the 5th largest city in  the country.

So I did a little search on Redfin to see how               much it would be if I was starting out and                   wanted to buy  a duplex  in a neighborhood that was already gentrified for only 3.5% down.

    Forget what you hear about having to put 10%   or 20% down to buy a property. With an FHA    loan you only need 3.5% to buy a 1-4 unit property provided you live in the property. With an FHA loan you can have the 3.5% down payment be a gift from your parents or other relative. With an FHA loan you can have a co signor like your parents or siblings to help you qualify. With an FHA loan  you can have a  credit score of about 620 and sometimes even lower. With an FHA loan you get to add the rent from the other units to your income to help you qualify.  FHA loans give us lots of options  to help get people started in real estate.

So for the property pictured above it is a duplex in the Bella Vista neighborhood of Philadelphia with one 2 bedroom/2.5 bath unit rented for $1350 and one 1 bedroom/1 bath unit rented for $925 . Utilities are separate so your tenant will pay for their own. After searching on Craigslist for similar rentals I believe these rents to be under market so there should be room to raise them in the future. 

Here is how the payment on this breaks down on an FHA loan using a current sample rate of 3.0% with no points  on a 30 year fixed rate loan. Note that in exchange for letting you put so little down on a property, FHA charges you two mortgage insurances. One is added to the loan amount (1.75% Up Front Mortgage Insurance) and one you pay monthly (.85% Monthly Mortgage Insurance)

Asking Price: $425,000
Down Payment: (3.5%) $14,875
Loan Amount: $410,125
Final Loan Amount after Up Front Mortgage Insurance of $7177 Is Added:  $417,302

Principle & Interest Estimate: $1760
Property Tax (1.4%) Estimate: $496
Homeowner's Insurance Estimate: $175
Monthly Mortgage Insurance Estimate: $296

Total Estimated Monthly Payment: $2727

Now if I move into the one bedroom apartment I will be receiving  $1350 in rent from the 2 bedroom unit based on the current lease. $2727 - $1350 =  $1377 will be my portion of the monthly payment.

So now I own a duplex in downtown Philly for less than $1400 a month!  In addition I  put less than $15,000 down. There will be closing costs but there is a way to cover those without having money. On FHA what you can do is choose a slightly higher  rate and get a "rebate" that is used to pay your closing costs. Your mortgage person will help you with this.

Bottom line is if I want to move out in a few years and buy another 1-4 unit property I can now rent this out (most likely the rents will cover my payment) and now the tenants will pay this property off for me so when I am retired I  have an income stream. The more 1-4 units I buy the more income I will have when I retire! 

I also looked up the last time this property sold....on July 13, 1989 this property sold for $62,000! Keep that in mind when buying property.  The best way to get wealthy with real estate  is time. Over time your property will appreciate, your tenants will  pay off your mortgage and you will reap the benefits of a secure retirement!

 It has been in the news for years...many pensions are woefully underfunded.  In 2014 Congress passed legislation  that allows for underfunded pensions to cut benefits if it will improve the solvency of the fund.

Shortly the Treasury Department will be deciding if one of the nations largest pension funds can cut retirees benefits by as much as 23%.  “This is going to be a national crisis for hundreds of thousands, and eventually millions, of retirees and their families,” said Karen Friedman, executive vice president of the Pension Rights Center.

See full article here

Here is the thing... you can only count on yourself for your  retirement...NO ONE ELSE IS GOING TO SAVE YOU.  Do not count on your parents to leave you money...they might want to spend it, they might  fall ill  or they might need expensive long term care. Don't count on a pension whose management and solvency is in someone else's  hand.

I recently did a loan for two  couples who had similar financial situations. Both were about 70, both still had mortgages on the house they lived in, both had some credit card debt and both lived on social security. One couple existed solely on social security and a small income from a part time job. At the end of the month this couple had just enough money to pay their bills...no eating out, no trips...absolutely no money was available for anything extra.

The other couple had one rental property that was mortgage/debt free. After expenses for tax/insurance, etc. that property generated about $2500 extra a month for them in addition to their social security. That extra  $2500 a month goes a long way to having a more enjoyable  life. That $2500 a month is  dinners out, a weekend away, ice cream for the grandchildren. 

So please...save yourself....don't wait for anyone else to do it. Even if you have a pension buy just one extra property that you can rent out. Over time the tenants will pay off the property for you and when you are retired it could be the difference between existing and living!