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GETTING INTO REAL ESTATE

There's no place like home, Dorothy said from Oz

Warm cooked meals and family gatherings just because

Financed, finished, and furnished with style

Come on in and stay for awhile

Have some coffee; if it's late, a drink or two

The guest room is all set; yours is the room with a view

It's my most valuable asset; the equity grows everyday

And when I refinance and pull out cash, it's tax-free pay

It's the American dream where memories are created; of this, there's no debate

Tried and true, there is nothing much better than owning real estate

—Dana Frank

Real estate does not discriminate. Unlike most occupations, real estate investorship does not know your ethnicity, what college degree you hold or don't, or what pronoun you prefer to be addressed by. Once you own the property, whether it is a single-family residence, a multi-unit apartment building, or commercial space, you can manipulate your returns by renting it out, personally residing in it, sharing it with roommates, renting out all or portions of it on Airbnb for extra revenue, renovating it, refinancing and pulling out cash, selling it for a profit, or passing a valuable and appreciating asset on to your heirs.

Think about the fancy neighborhood houses of your childhood. You know, the ones you used to go to on Halloween to trick or treat, even though they weren't in your neighborhood, because they gave out the big candy bars! Peering past the entryway adorned in your sweet, silly, or scary costume, you caught a glimpse of the affluent family and their good life inside. Perhaps there was a cozy fire as the adults enjoyed hot spiked apple cider. They grinned at you knowing you weren't from their block, let alone a several-mile radius, as they tossed treats into your pillowcase or grocery bag.

If you were like me, you aspired to live that way. I wanted to know what families did to get one of those higher-end zip codes. Some were in gated communities. Some were perched on the shores of the Lake Washington waterfront with immaculate rolling lawns. Some had pools and guest houses. Missing were the broken-down vehicles parked in front. The cars with long expired license tabs, still hiked up on jacks, lining the street. Also absent were any signs of deferred maintenance or loiterers looking for narcotics or trouble. I became a student of how affluent people made their wealth, and it was apparent that real estate, a commodity we all need, was a sure and fast way to make it happen.

Our family business has primarily supported affordable housing. Affordable housing is for people who have good jobs, such as teachers, city workers, and young professionals just starting out. That is different than low-income housing. Low-income housing often involves government subsidies such as Section 8, the federal government voucher program that helps very low-income people pay for safe, private-market housing.

There will always be circumstances where renting is the right thing to do. College students, those moving to a city and wanting to learn the area before purchasing, those in transition from divorce, death in the family, or life trauma are examples of when renting may be necessary and feasible. But, when I calculate how much outflow I see from those long-term renters, paying often-escalating rent payments, there is a huge, missed opportunity for creating equity and financial growth. I once did the math, and one of our longest residing residents under lease had paid us $480,000 in rental payments over 12 years. So, even if you are forced to rent, if you see an opportunity to invest in a property, the option should be considered.

During the last 3 years of my daughter's college education, she along with four roommates rented a five-bedroom home that one of the students' parents owned. Year after year, the rent increased, and there was a line-up of students waiting to take over the lease as soon as the graduating seniors left. That was a beneficial asset for that family.

Here's just a brief list of the benefits you'll enjoy from investing in real estate and becoming a housing provider:

• Your assets will appreciate over time.
• You'll boost your monthly income.
• You'll enjoy long-term security.
• You can leverage even more investment potential.
• You'll receive tax advantages.

Perhaps you already own property, or you are just considering investing. If you already own, you're likely already enjoying the benefits of appreciation. You've heard the statistics, watched the ads for the late-night seminars, and witnessed the power of inflation at work.

Real estate will generate wealth. That home your parents purchased in 1960, when the average cost of a home was $12,000, is now on average worth $350,000. Between 1967 and 2022, housing experienced an average inflation rate of 4.23% per year. This is significant. Just ask the Federal Reserve, which strives to keep inflation at 2%. In other words, the equivalent housing that cost $100,000 in 1967 would cost $978k in 2022 (www.in2013dollars.com, n.d.).

Many parents invest in guaranteed education programs to provide a foundation for their children's future. I believe there should be programs for your children's future homeownership, a kind of guaranteed housing program, if you will. Parents with the means are increasingly helping their adult children purchase homes, whether that means cosigning a mortgage, giving money for a down payment, or buying a property outright for them. And that has a lot to do with rental prices being so high (Ballentine and Cachero, 2022).

Housing costs will continue to rise, whether you are a player and winning watching values rise, or a spectator playing more on the sidelines.

HOW TO START BUILDING YOUR REAL ESTATE EQUITY

Granted, it can be intimidating and risky to step into the world of real property ownership. However, when you consider what you are spending on leasing or renting something you don't own, those numbers are both disheartening and a strong motivator to do something differently. At least I believe they should be. Whether you're conservative or aggressive in your real estate acquisitions, real estate has proven to be a tool to provide cash flow and appreciating value over time.

IMPROVE YOUR CREDIT SCORE

The first step, especially if you're just starting out, is to get your credit in shape. With poor credit, you're relegated to the sidelines of the real estate investment game. When rental applicants send over their applications for me to consider, I am often baffled at how young adults can ruin their credit in such a short time frame.

A credit report is like an x-ray full-body financial scan. A credit report lists each of your creditors and what they have reported about you. It pulls up every demerit hidden behind your poised exterior persona. That student loan that is delinquent, that cellular phone bill you forgot to pay, or the late payment to Nordstrom for the outfit you couldn't afford but had to have—all are a part of your financial DNA. The three largest credit score companies in the United States are Equifax, TransUnion, and Experian. They are required to provide one free credit report per year to consumers. You can access this free credit report on their website or by sending a request. Additionally, many banks and credit card companies now provide their customers free credit scores as part of their annual fees and maintenance.

A credit score is different than a credit report. A credit score is a three-digit number that provides potential lenders (and property owners like me) with a prediction of your credit behavior, based on your past behavior, of what the likelihood is that you'll make your payments on time. A good credit score is 670 or better. The highest score you can get is 850. Paying your bills regularly and on time and keeping your credit usage low (meaning, don't keep your credit card balance at the max of your limit and only pay minimums each month) are the things that will improve your score.

If you have a low credit score but want to invest in real estate, it's important to get a full credit report, determine which creditors are reporting negatively, and work to get those low scores removed. For example, if it's a credit card company that is reporting late payment, perhaps you can call the customer service department of the creditor and offer to pay an additional fee to remove the negative information.

The easiest type of negative scoring to repair is when you owe money to a recipient who is rightfully entitled to it. Make a payment plan, pay them on time and as promised, and ask that they remove the negative comment on your report as a condition of your repayment.

Some companies represent themselves as credit-score-repair services. I don't recommend them. They charge large fees for minimal service and often poor results.

Repairing your credit can take time, diligence, and patience. Applying for too many credit cards or other forms of credit beyond your income will lower your score. Be careful about having too many cards. And you should pay off the balance of your credit card in full every month. High-interest minimum payments will only put you further in debt and continue a cycle of poor credit.

It's also important to protect your...