Starting Out

I'm new to the real estate game, since this past summer, and I'm on a steep learning curve so far. There is so much to learn about: software, boards, legal and ethical issues, affordable housing, rules, people, yada yada yada.

And what an exciting time to be starting out in this field, right? Part of what adds to the learning curve is that the game is changing daily. There is the whole sub-prime lending facet that has changed our economy not just on a national scale, but world-wide. And although the sub-prime lending is just a small part of what is going on, really, it has affected our nation's solvency and affected how to and who can get lending dollars anymore.

Okay, I do not really understand the whole sub-prime lending thing.

What I do understand is that people were getting creative in financing things, and the banks and lenders let them do it. Sort of like those pyramid schemes, I think, where nobody is really owning anything or making any money except for the shady character at the top of the pyramid. I envision a house of cards where nothing is really holding the whole thing together and a really light breeze will bring it crashing down.

So is it a bad thing that lending practices have tightened? Not really. Do you have to be more responsible when borrowing money? Absolutely--and shouldn't the average Joe have already been more responsible? And clearly, the average Joe had no illusions about what he/she could borrow and pay back over time. Hopefully, these changes will prevent Joe from getting in over his/her head.

But I think it all comes down to being realistic and honest. Reality and honesty to understand our home finances, and living within our means.

Just because that loan officer approves you for a $300,000 loan does not mean you should buy that $300,000 house.

I read a book this summer by Robert Kiyosaki, Rich Dad Poor Dad. He talks about building wealth by acquiring cash flowing assets, mainly real estate. But a bigger lesson I took from his book is about living within your means. He points out that the typical American dream of owing your own home and making that home your main savings asset is a dangerous situation. The events of the past year surely highlight this point. He also cautions against the concept of trading up your home as a way to increase wealth. He points out that with the higher mortgage that likely results from the trade up, you probably increase your insurance and property tax fees. This move into the bigger more expensive house actually ends up robbing you by making less money available to you to use for other wealth-building activities. Wow!