Chapter Twenty-Three: Afterthoughts

Chapter Twenty-Three

Afterthoughts

We have covered the Real Estate Development field from beginning to end. The first part of the book deals with get-rich-quick schemes. They involve borrowing to the hilt and selling immediately, at inflated prices.

One difficulty is that houses do not always sell at the desired time. In fact, prospects who will pay an inflated price are limited also. No mention is ever made of the NEED FOR and COST OF repairs.

There is little future in trying to make payments on two or three mortgages. In truth, the individual is actually working for the mortgage holders first and himself second. There is not much that he can do for himself in such debt-bound circumstances.

And if the real estate market should tighten up, as it often does, there is slight chance that he can survive. Truthfully there is little chance that he will want to survive, since his mortgages will add up to more than the value of the property.

My method of operation advocates complete funding of each project by the individual involved. It is true that most people are not financially equipped to do so, at the beginning. But, by exercising prudence and frugality and if possible, doing some of the work themselves, they will accumulate enough cash in a relatively short time.

Prudence would be exercised by saving every penny of profit from the sale of a house. It would not include the purchase of a new car or a trip to Hawaii. Those things must wait until enough money has been saved to operate debt free.

An example of frugality is to buy one's appliances after the new models have appeared on the market. The old ones are brand new and carry the usual guarantee. There is probably little or no difference in the product except for the price. They are usually discounted as much as 40%. The total savings can amount to several hundred dollars.

Many ways will be discovered to save a few dollars, as one proceeds. It is fun to look for them and a source of satisfaction to find them.

For instance, your bill from the lumberyard is usually the largest. They close their monthly accounts on a certain date at the end of each month. You may ascertain the date from their bookkeeper.

If you order materials just before the closing date, payment will be due in a few days. If you order just after the closing date, you will add one month to your due date.

Here is one for the person who is saving money but still requires a construction loan. Your loan will undoubtedly be advanced in five payments. But use your own savings before you request an advance from the loan company. You may not need the money until you are eligible for the second or even the third payment. Your money will all come back at that time and you will have saved considerable interest charges. In other words, your own money will have been working for you instead of that of others.

A slow-down in the real estate market can wreck havoc with those who have acquired property which is mortgaged to the limit. But for those of you who finance your own deals, there is little or no risk.

In fact, a soft market can be a boon. Labor and material prices will shrink and you will find that you can have a house built for considerably less cost than during an active market.

As a small operator, you have a distinct advantage over competition. A tract builder needs many buyers. You need only one. His selling price is dictated by his overhead. You can adjust your selling price according to the amount of profit you are willing to accept.

Many times during a lull in real estate sales, it is wise to build a house and hold it until the market improves. The return on your investment will increase much greater than if you had put your money in the stock market or money market securities.

It is one of the safest investments available. Of course, there will be real estate taxes to pay. But they are deductible from your income tax. It is also necessary to carry a Homeowners Insurance Policy, but it can be a continuance of the coverage you had while building, and is inexpensive.

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