Get-Rich Schemes Have Poor Prospects

Real estate prices and selling records are going off the charts, as some say in show business.

But real estate investing for just plain folks is another matter. Maybe you’ve read or heard those “pie-in-the-sky” courses, books and come-ons telling you--for a price--how you can get rich in real estate investing.

This topic came up in a recent conversation with successful Washington real estate consultant/investor Justin Hinders, who needed only a question to take off.

“The airwaves and print media are being bombarded by slick, fast-buck artists who claim they have the know-how to teach every-day people how to make a fast million or two in real estate in their spare time, often by using other people’s money. That’s just so much baloney,” Hinders said.

Incidentally, he was a sailor during World War II, an Associated Press newsman in Washington for a while after, then a real estate association executive. He worked for three realty and developing firms before going into business for himself as a consultant/investor 15 years ago. His success is widely recognized here, along with his realty perception and integrity. He continues:

“In my 30 years in various forms of the realty business, I’ve never seen a fortune made overnight--or even in a year--by someone without very special background, qualifications or backing. But I have seen some very smart--yes, even sharp--people literally lose their shirts. Real estate can be and should be an excellent opportunity for the prudent investor to accumulate long-term profit and increased intrinsic values. This is not a get-rich-quick business.”

He might have added, if modesty had not precluded it, that real estate is also a “get-rich” business.

Before you dream about retiring to southern France on the cash flow from that boarded-up apartment building you’re thinking about buying with no down payment, remember two things, Hinders advised:

“No. 1, what goes up may indeed come down, and No. 2, some real estate investments are simply better than others.”

In addition, Hinders admitted that it often makes sense for some individual small investors to acquire a house a year as rental property investments.

But he added pointedly: “In all my years in the business I have never, never yet seen a condo apartment or single-family rental investment that could be rented immediately at a rate sufficiently high to pay the mortgage, taxes, condo fee, maintenance expenses and whatever else comes up . . . and I have looked at hundreds of such ‘opportunities’ over the years.”

Hinders noted that people who acquire and hold rental properties often build up substantial appreciation values. With reasonable, long-term financing, they often raise the rent enough to pay for the mortgage and other expenses. And after three to five years, the owner might even get a small cash flow.

But the main benefits are the appreciation in value and the ability to depreciate the cost of the building for tax purposes. However, it now appears that new tax laws will rule out fast depreciation and make owners take their depreciation over a longer term.

“Anyone contemplating attending a seminar offered by the get-rich-quick boys should ask one simple question, he advised. “If there is so much money to be made so easily, why is this guy offering me all this advice and know-how for a relatively small amount of money?

“If he is so rich, why is he willing to give me the key to riches? Would I broadcast worthwhile business secrets to the world for a few bucks or even a few hundred dollars? Not me and probably not you.”

Hinders also urged prospective eager-to-get-rich-folks to be aware that some of the best-known U.S. corporations have lost hundreds of millions in real estate ventures.

What does Hinders advise investment-hungry folks? “Buy the largest home (to live in) your budget can afford. It will be a foundation upon which to build your nest egg. When you have more spare cash, buy stock in a really solid real estate investment trust. Some pay good dividends and their prices have doubled or tripled in the past five to 10 years. Better to be safe than sorry.”