Walk around Boston.

The rich getting richer – real estate perspective

I’m currently reading the book “Why we want you to be rich” by Donald trump and Robert Kiyosaki. They pointed out the fact that the gap between the rich and the poor are getting wider and wider. They also pointed out that many of us are not financially educated. I’d like to talk about these two specific points in relation to what I’m experiencing from the real estate point of view.

The rich are getting richer, and the poor are getting poorer.

And the middle class are getting poorer and starting to disappear! I’m seeing this everyday in the real estate market, especially now when foreclosures are at an all time high and borrowing money is becoming more and more difficult. The “poor” are losing their homes to foreclosure and the middle class cannot afford to buy homes because of the strict lending guidelines. Furthermore, the poor have hurt their credit due to these foreclosures, which will prevent them from building their wealth in the years to come.

All this is making the rich even richer! Right now, only the individuals with cash and great credit can purchase investment property. In addition, they are buying these investment properties at such low prices it’s as if they are stealing directly from the poor! Here’s an example. The poor buys a 3-family home for $500,000 five years ago using a special mortgage. Today, it gets foreclosed on by the bank and goes back on the market for $250,000. The rich then come in and buy the property for $200,000, clean it up, and rent it back to the poor and middle class for huge profit.

I don’t know about you but I definitely want to be doing what the “rich” are doing. Where do you stand?

Financial Education

I’m also noticing that many of us are not as financially educated as we should be. For those of you who are 25 or older, you probably own at least 1 property. If you do, that’s great! But there is one thing that a financially educated person will do with that home that others do not. A financially responsible and educated person would immediately set up a HELOC or Home Equity Line of Credit for their home. This allows you to access a portion of the equity in your home for major purchases such as home improvements or purchasing other properties. This would also be helpful in an emergency if you needed cash quickly.

A HELOC is especially useful to those individuals who have a lot of equity tied up in a property and they can leverage it to purchase more property. For example, a friend of mine wanted to buy a property but would only be able to buy it if they can close in 5 days. She went home, pulled out her check book, and wrote a check out for the full purchase price. To add to my point, I’ve sold many houses to all different types of people. Out of all my clients, the one who bought the most expensive house was the ONLY one who had a HELOC in place. Taking advantage of a HELOC is just one simple example of how the financially educated end up having the most wealth.

Do you have a HELOC set up on your home?