Phil Town on Real Estate Investing
Filed under: Phil Town, Phil Town Investing, Phil Town Rule#1 Author, Rule #1
Phil Town’s Real Estate Investing advice 2009.
“You’ve got money to invest”, says Phil Town. What should you do? Maybe buy a house cheap in today’s bad real estate market.
But why is it a bad market? Before the bubble it was common to pay 8 or 9% for a mortgage. If you have $1000 per month available to pay the mortgage you could handle a $130,000 mortgage for House X. But if the bank lent you the money at 4% you could handle a mortgage of $210,000. What happened in real estate is the mortgage rates went down and people discovered they could buy a more expensive house for the same monthly payment, so they started buying a more expensive house – HOUSE Y. And the market responded by raising house prices. Eventually prices rose to a point where the only house you could buy for $210,000 was House X. That’s where we are today. So what happens when mortgage rates go back up to 8 or 9%? The opposite. Prices of homes collapse downward.
So why would mortgages go up to 8 or 9%? A home loan is a long term loan. Someone is holding the mortgage for 30 years before its paid off. How would you feel about lending me money at 4% if inflation is running 6% per year? You should feel stupid. You lent me $1 Million of buying power today and over the next 30 years you’ll receive money which has the buying power of about $600,000.
Lenders have to lend at a rate above what they think inflation is going to be over a 30 year time frame or they get screwed. Instead of making money on the money you lent me, you’d be losing it. Bankers don’t get all those nice bank buildings because they are stupid. If we are going to get inflation, we are going to get high mortgage rates. And real estate is going to go nowhere. Phil Town is a Rule#1 investor.
Now go play.
Investor Basics
In many expert’s opinion being an investor has a high degree of risk, and the needs to maximize the security of the investment is to get proof that the business for sale that you want to purchase is going to bring you a profit. This confidence that you’d make a good deal of profit has its price if we consider the fact that such investments are usually higher than in the situation when the business was bankrupt or in high debts. Moreover, you’d pay more money when purchasing a business than you’d need to start one. The real process behind such a transaction has very complex mechanisms that have to be checked and investigated so that no problems occur.
Before searching for any business for sale, it is important to know what you want. How experienced are you in that business? How much of your time can you devote to the business? Can you be totally committed to it? Can you handle difficult situations without losing your temper? Is the potential risk assumed by the purchase of a business for sale well calculated? Full awareness of the reasons that motivate you to buy the business remains another key factor of the purchase equation. Some people want to find a business for sale to practice a hobby when they are retired, others try to eliminate competition or increase prestige and last but not least, many investors are simply after an opportunity to get in control of their destiny.
The next step to take is to check several sources where you can find a good business for sale. Relocation could be an issue here, in case the business activity is carried on in another city you should either change your home or move the business; hence make sure to count this factor among the overall decision influencing elements. The first place to look for a business is in newspaper classifieds that are present in most local and metropolitan broadsheets.
You can also learn about a business for sale from all sorts of in-house investor publications, newsletters and even emails. According to experts, investment brokers are the best source of information possible for such cases, as they are often the ones to represent the business for sale on the market. Sometimes, if nothing in the offer matches the entrepreneur’s request or need, brokers will work together with other agencies until they come up with something to match the specified criteria. In fact the circulation of the business listings among brokers is nothing new or restricted.
Phil Town-What its Worth
Phil Town Gives Advice to Investors.
This is not a unique concept. Let’s figure out what something is worth before we buy it. You do it all the time for almost everything you buy. But for certain (but wrong) reasons, that’s what investors very clearly do NOT do when they consider buying into a business. The key to great investing is to be rational. To NOT get caught in the emotion of the moment that’s sweeping the country. If we can stay rational and figure out what a business is worth as a business before we buy it, and then buy it for less than its worth, we’re going to be very successful investors. Well, that’s not true. Investors most certainly do do that when they buy a piece of a private business like a restaurant or a laundry. But they don’t do it when they buy a piece of a PUBLIC business – when they buy shares of stock. When they do buy stock they assume that because there are so many smart people buying the stock that day at that price, the price must be what its worth. In fact, in the stock market, EMOTION is huge player for a Rule #1 investor. Its definitely not the uber-rational place its made out to be. Robert Shiller, a Yale economist, made that very point in his best seller, “Irrational Exhuberance”. In it, in 1999, he predicted the coming stock market crash. The key to great investing is to be rational. To NOT get caught in the emotion of the moment that’s sweeping the country. If we can stay rational and figure out what a business is worth as a business before we buy it, and then buy it for less than its worth, we’re going to be very successful investors. He also predicted the real estate dive. People get extremely emotionally caught up in the stock market because so much money is at stake. When the market is going up, they get greedy and buy just because they don’t want to miss out on easy money. And they freak out when the market is going down and they sell because they are afraid of losing everything.
Now go play. - Phil Town