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Why Renters are the Next Mortgage Crisis

If you’ve been wondering if you should be renting rather than owning, consider this expert’s view.

If the constant media drum beat of negativity toward home ownership has you wondering if you’re crazy for buying a home instead of renting, you’ll feel better after reading Liz Davidson’s Forbes Magazine blog, The Next Mortgage Crisis.

Davidson, the CEO of financial education company Financial Finesse, argues that renters set themselves up for financial failure in retirement:

“Today, there’s another mortgage crisis in the works — that is, NOT having one — choosing to rent when you can afford to buy; choosing to forgo building equity in a home as a major source of retirement security — something that may be more necessary now than ever before with a soft stock market and low interest rates.”

Her cautionary tale compares the consumer who buys a $300,000 home and has a $1,500 monthly mortgage payment with the consumer who rents.

If rents rise at the pace of current inflation (3.2% a year) the renter will pay $900,000 for housing over 30 years, while the home owner will pay $540,000 because his payment continues to be $1,500 a month.

If his house appreciates 1% a year, the home owner heads into retirement with $100,000 in equity in addition to the $300,000 he paid for his house. The home owner does have to keep paying housing expenses like property taxes and insurance, but the monthly mortgage is paid off.

Meanwhile, the renter has paid nearly twice as much to keep a roof over his head for 30 years, has given up $400,000 in retirement assets, and has to continue paying rent during retirement.

Becoming a nation of renters will bring on a future financial crisis, Davidson predicts:

“If Americans don’t recover soon from their pessimism around home ownership, we predict another fallout from the financial crisis will surface many years from now when a nation of renters tries to retire. They won’t have equity in their homes. Their paychecks will be stretched to the limit, not leaving room for saving and investing for retirement and other financial goals such as college funding. Instead of their expenses reducing through retirement, they will look straight down the barrel of increased rent payments for the rest of their lives.”

I know everyone isn’t suited for home ownership. But for me, home ownership is a ticket to an affordable retirement and the reason I can tell my high schooler she can go to college anywhere that will take her, and why I can look forward to a last pit stop at a really nice nursing home on my way out of this world. I can’t imagine trading that security for the short-term freedom of a rental home.

Are you sorry or happy you choose to buy your home? Could you see yourself going back to renting?

9 Mistakes to Avoid For Investors

1) Not getting an education
Getting an education is a critical part of becoming a successful real estate investor. It’s much easier and less costly to educate yourself than to make mistakes in the real world. We are lucky to live in a country full of educational opportunities for whichever endeavor we want to pursue. Surprisingly though, not everyone takes the initiative to learn before they take action. This exposes these people to costly (and sometimes career-ending) mistakes that could have easily been avoided. Some misguided people even complain that the books, courses, or seminars promoted by real estate experts are too expensive. I guess that depends on where you stand. To me, they seem cheap compared to what I know can be earned in this business. Perhaps to a novice though, they may seem expensive. But as the saying goes, “If you think education is expensive, try ignorance.” Think about it. Is a $500 course worth it if what you learn only makes you $5,000 on a single wholesale deal? What if it could save you a mere $5,000 on a single rehab? Or what if it helped you create an extra $200 per month cash flow on a single property for just one year? Would it be worth it to you? The value of an education often doesn’t reveal itself until you’ve stepped up to the plate and put yourself in the game.

2) Not getting an education from the right people
The internet is a great tool. But it’s also saturated with too much information – good and bad. Oftentimes, from less than credible sources. So don’t confuse the information you find on the internet as neccessarily being quality information. For example, there are a number of real estate investing newsgroups and blogs that have proliferated the internet. Many so called experts on these sites are more than willing to share enough information to get you into trouble. Do you really want to get your information from “rei-man-TX” or “investor-guy75?” Carefully consider whether these are truly reputable sources to be obtaining information from. I can’t believe some of the misinformation I’ve seen posted on these sites. Remember, anyone can post on a newsgroup and anyone can create a blog. But just because someone has a blog, doesn’t mean they necessarily know what they’re talking about. The misinformation you get may be costly…in either lost profits or reputation.

Novice investors may also get misinformation from friends or family members. Perhaps they dabbled in real estate at one point. Now they feel entitled to tell you what little they may know about real estate investing. Be extremely wary of people who have “dabbled” in anything. Dabblers are rarely experts in anything. As the saying goes, “Jack of all trades, master of nothing.”

3) Not taking action
If you’ve managed to get a good education from a good source, the next step is to take some action. Knowledge is only power once you begin to apply it properly. Merely buying a wide array of real estate investing products or attending bootcamps isn’t going to make you any money. Some novices neglect to take action because they’re still searching for that magical secret that is going to make it start raining deals. The real secret is hard work! Others are paralyzed by fear of what might happen if they get one of their offers accepted. Or, they may give up making offers if they don’t experience instant success. Whatever the reason, not taking consistent action is a sure way to fail at anything. Personally, I believe that initial failure is the universe’s way of forcing us to make sure we truly want what we’re pursuing. In the end, persistence is what leads to success. And the more we persist, the closer we get to success.

Many novices regularly attend their local real estate clubs. Clubs and associations are excellent way to network with other like-mided people, learn techniques and strategies, and have fun. Unfortunately, I’ve met countless club goers who have never done a deal before. Instead of using the club as a spring board into taking action, they tend to use the club as a warm blanket because they fear being out on their own. When I meet these people, my advice to them is to stop sitting around with the other novices talking about all the deals they would like to be doing. My advice is simple, go out there and get some deals done.

We all need a good education. But that is only one step in the process. There is no substitute for hard work.

4) Not having realistic expectations
Most novice real estate investors have unrealistic expectations. It may be about the amount of repairs a property needs, the time it takes to complete a project, or the profit they should get from a deal. They’re expectations are either too high or too low. If they’re wholesaling properties, they may get too greedy and try to charge the rehabber too much. If they’re rehabbing properties, they may underestimate the repairs required. If they’re landlording, they may underestimate the amount of maintenance a property will require or forget to factor in vacancies. While getting an education plays a large role in these mistakes, another reason is that they did not leave enough room for error. They assumed everything would go as planned. Real estate deals rarely go exactly as planned. Experienced investors understand the importance of planning for the unexpected. This way, when things don’t go as planned it’s not the end of the world.

5) Not treating real estate investing as a business
Contrary to popular belief, real estate investing is not like the stock market. It is not a passive investment. It is an active investment. Whether a novice investor’s intentions are to flip or to own rentals, they sometimes think owning real estate is going to be a lot easier than it is. While the profit potential in real estate is usually much greater than owning a stock, it inherently requires more effort than most passive types of investments. Whether you’re wholesaling, rehabbing, or landlording, real estate requires your time and constant attention. In this way, it’s more like a business than an investment. For example, you must be disciplined about your business. You need to set a schedule for yourself and stick to it. You need to set policies and procedures and adhere to them. You need to set goals and do whatever you can to achieve them. Not everyone has that level of discipline without a boss telling them what to do. When you run your own business, you are the boss. You must be willing to make sacrifices to succeed. For you this might mean that you need to turn off the television and read your home-study courses. It might mean that instead of spending money on new clothes, you invest that money in your business. Or it might mean that instead of going to the park on Saturday you search the MLS, look at properties, and familiarize yourself with your target neighborhoods.

6) Not being patient
It can take awhile for novice investors to see positive results when starting out. You can’t expect to immediately find deals and make money. It may take several months to get your first deal. As a comparison, new real estate agents are often told by their brokers that it may take up to six months to close their first transaction. Similarly, real estate investors should expect to wait a few months to close their first transaction. Furthermore, it can take years for your real estate investing business to become a thriving venture. There aren’t too many businesses that become profitable immediately – no matter the type of business. It often takes several years for most businesses to get to a point where they make steady and reliable profits. Running your own business can be fun and extremely rewarding. But rest assured, the early years can be unpredictable. As a result, you need to have a lot of patience for things to take off.

7) Not concentrating on quality deals
This is one of the biggest mistakes I see novice investors make, especially after they have done a few deals. After they have some success, they begin to focus too much on quantity instead of doing quality deals. This mindset leads them to do less profitable deals. And once an investor begins to do thinner deals for the sake of doing more deals and outdoing their competition, they eventually find themselves in trouble. For example, I know many wholesalers and rehabbers who became too confident before the housing downturn of 2006 and loaded up on properties. When the market went south, these investors were left holding a lot of worthless inventory. Most of these investors went bankrupt and lost all of their properties. Unfortunately, this is a lesson that most investors learn the hard way. For some reason, avoiding the temptation to focus on quantity is a principle that most investors have a hard time accepting. Their natural inclination is to do more. They might feel the pressure to tell their friends what new project they’re working on. They might feel bored unless they’re working on something new. Or they might feel guilty about not “staying busy.” Whatever the reason, novices must learn that investing is an activity in which “staying busy” is not always smart. Sometimes, the best deals are the ones you don’t do. When an investor learns to concentrate on a small number of quality deals, they enjoy not only better profits, but also a better lifestyle since they’re not running around managing a huge portfolio of properties. For most people, the whole point of getting into real estate investing in the first place is to live a better quality of life, not to work longer and harder.

8) Not moving on from bad deals fast enough
Since novice real investors usually don’t have a steady stream of leads coming in and don’t know what a truly profitable deal looks like, they tend to overanalyze bad deals far too long. They get anxious and want to get deals done. And even when they put the numbers of the deal into their spreadsheet and see the deal clearly doesn’t work, they still find a reason to justify it. They logically know that a deal should be avoided, but they try to justify it anyway. While I believe everyone needs to start somewhere, the ideal place for a novice real estate investor to start is in a good deal not a bad one. What novices eventually learn is that not too long after taking on a marginal deal, a greatdeal is not far behind. But because they’ve tied up their resources with the marginal deal, they can’t pursue the great deal.

9) Not writing down goals
Don’t try to run your business without a clear plan. Clarify your goals by committing them to writing. Then, revisit them once a week until they become reality. Something magical happens when you write down your goals on paper. They begin to take root. When you focus on them repeatedly, you nurture them and they begin to grow. It’s important to write down your purpose, strategies, and goals. Begin by asking yourself the following questions:

-What strategy am I pursuing?
-What will I do with the properties I will buy?
-How many deals per year will I do?
-How much profit will I earn per deal?
-How many offers do I make to make this happen?
-What kind of life do I want to live outside of the office?

When you’re clear about your goals, you have a much easier time accomplishing them. And if your goals are unrealistic you should change them as neccessary. Don’t get stuck in an unrealistic set of goals that will only produce frustration. At the same time, you shouldn’t change your goals too often either. It’s hard to hit a moving target. You want to strike a good balance between having reasonable, achieveable goals and also setting goals that will force you to get outside your comfort zone.

Wet Basement Solutions

8 Solutions to Common Wet-Basement Problems

Solving wet-basement problems is one of the most important things you can do to protect the value of your home and health of your family.

Some wet basements are easy to cure simply by clearing gutters and by diverting gutter water away from the foundation. But if the problem comes from other sources—water flowing toward the house on the surface, seeping in from underground, or backing up through municipal storm drains—you must take more aggressive action.

Here are eight strategies to keep water out of your basement.

1. Add gutter extensions

If downspouts are dumping water less than 5 feet away from your house, you can guide water farther out by adding plastic or metal gutter extensions.

But extensions aren’t the neatest or most effective long-term solution, especially if you’re likely to trip over them or run over them with a lawn mower. Permanent, underground drain pipe is invisible and capable of moving large quantities of gutter runoff much farther from your house.

For about $10 a foot, a landscaper or waterproofing contractor will dig a sloping trench and install pipe to carry the water safely away.

2. Plug gaps

If you see water dribbling into the basement through cracks or gaps around plumbing pipes, you can plug the openings yourself with hydraulic cement or polyurethane caulk for less than $20.

Plugs work when the problem is simply a hole that water oozes through, either from surface runoff or from wet soil. But if the water is coming up through the floor, or at the joint where floor and walls meet, the problem is groundwater, and plugs won’t do the trick.

3. Restore the crown

If the gutters are working and you’ve plugged obvious holes, but water still dribbles into your basement or crawl space from high on foundation walls, then surface water isn’t draining away from the house as it should.
Your house should sit on a “crown” of soil that slopes at least 6 inches over the first 10 feet in all directions.

Over time, the soil around the foundation settles. You can build it back with a shovel and dirt. One cubic yard of a water-shedding clay-loam mix from a landscape supply house costs around $30 (plus delivery) and is enough for a 2-foot-wide, 3-inch-deep layer along 57 feet of foundation.

4. Reshape the landscape

Since your home’s siding slightly overlaps its foundation, building up the crown could bring soil–and rot and termites–too close to siding for comfort: 6 inches is the minimum safe distance. In that case, create a berm (a mound of dirt) or a swale (a wide, shallow ditch), landscape features that redirect water long before it reaches your house.

In small areas, berms are easy; a landscape contractor can build one for a few hundred dollars. On bigger projects, berms make less sense because you’ll have to truck in too much soil. In that case, dig a swale (about $1,000). Once landscaping grows in, berms and swales can be attractive features in your yard.

5. Repair footing drains

If water is leaking into your basement low on the walls or at the seams where walls meet the floor, your problem is hydrostatic pressure pushing water up from the ground.

First, check whether you have footing drains, underground pipes installed when the house was built to carry water away from the foundation. (Look for a manhole or drain in the basement floor or a cleanout pipe capped a few inches above the floor.)

If the drains are clogged, open the cleanout and flush the pipes with a garden hose. If that doesn’t work, a plumber with an augur can do the job for about $600.

6. Install a curtain drain

If you don’t have working footing drains, install a curtain drain to divert water that’s traveling underground toward your house.

A type of French drain, a curtain drain is a shallow trench–2 feet deep and 1.5 feet across–filled with gravel and perforated piping that intercepts water uphill of your house and carries it down the slope a safe distance away.

If the drain passes through an area with trees or shrubs, consider switching to solid pipe to reduce the risk of roots growing into the piping and clogging it. Cost: $10 to $16 per linear foot.

7. Pump the water

If you can’t keep subsurface water out, you’ll have to channel it from the inside.

To create an interior drain system, saw a channel around the perimeter of the floor, chip out the concrete, and lay perforated pipe in the hole. The pipe drains to a collection tank at the basement’s low spot, where a sump pump shoots it out the house.

Starting at about $3,000, an interior system is the best and least disruptive option in an unfinished basement with easy access. It’s also a good choice if your yard is filled with mature landscaping that digging an exterior drainage system would destroy.

8. Waterproof the walls

Installing an interior drainage system gets the water out but doesn’t waterproof the walls. For that, you need an exterior system: a French drain to relieve hydrostatic pressure and exterior waterproofing to protect the foundation.

It’s a big job that requires excavating around the house, but it may be the best solution if you have a foundation with numerous gaps. It also keeps the mess and water outside, which may be the best choice if you don’t want to tear up a finished basement.

The downside, besides a price tag that can reach $20,000, is that your yard takes a beating, and you may need to remove decks or walkways.

Easy Storage Solutions

Low-Cost Kitchen Storage: Cheap Stress Reduction

Low-cost storage strategies bring calm to your kitchen, banishing stress-inducing clutter and leaving the space orderly.

Rack attack: Store pots, everyday dishes, spices, and wine on racks that are freestanding, wall-hung, and ceiling-hung–and voila! Everything is in its own location, visible, and easily accessible!

Position the racks where they make sense: A pot rack above the cooktop; a dish rack close to the dishwasher for quick unloading; spices near the range or meal prep area; a wine rack near the wine glasses and dining table.

You’ll find racks in metal, wood, and other materials, starting as low as $10 to $15.

Shelf expression: You can size an open shelf to fit anywhere you need it and paint or stain it to match your décor. Use shelves for storing such kitchen necessities as cookbooks, attractive dishware, oils and vinegars, and spices.

Home improvement centers have storage sections where you can hunt, but don’t overlook the office supply and bathroom sections for even more low-cost shelves.

You’ll find cool shelves starting as low as $8.

Great divide: Organize the contents of kitchen drawers and cabinets with wire or wood inserts. Drawer dividers keep utensils sorted and orderly. Vertical dividers inside cabinets create a spot for storing trays and cookie sheets. You’ll also find special inserts for storing knives and spices neatly inside drawers.

Available in wire, wood, or plastic, dividers start at about $3.

Elevated thinking: Wire stacking shelves have legs to elevate the storage surface. Set a stacking shelf on a countertop, existing shelf, or inside a cabinet to increase kitchen storage space. Use a stacking shelf for canned goods, dishware, spices, and more.

Prices start at about $6.

Hang ups: Install pegs or hooks along a backsplash, inside cabinets, or anywhere on a kitchen wall to create a place for cups, hot pads, cooking utensils, keys, and recipe clips. Hooks are available that fit over doors or come equipped with magnets that adhere to any metal surface.

Pegs and hooks start as low as $1.

Basket case: Baskets come in a variety of materials to complement your décor, from natural woven grasses to canvas to colorful plastic bins. Set baskets on open shelves, inside cupboards, and on the kitchen counter to round up small items, such as napkin rings and bamboo skewers.

Baskets are great for storing dish towels, cloth napkins, and coupons. Prices start as low as $1.

With four home renovations to her credit, Jan Soults Walker is a devotee of improvements, products, and trends for the home and garden. For 25 years she’s written for a number of national home shelter publications, and has authored 18 books on home improvement and decorating.