As you might suspect, coming up with material for these columns every week can be challenging. This week, as I reviewed industry newsletters, emails from readers, and conversations with my Realtors, it got me thinking about how much has changed since I started in this business and that if I had to do it all over again, I’d choose exactly the same business.
As a 19-year-old college student almost 50 years ago, when I was living on social security payments after my father died, I decided to buy a house as an investment. The purchase price was $18,000 and I was a little short on cash, so I offered $1,800 as a down payment and the seller agreed to carry back an $1,800 second. My monthly mortgage payment would be $108 if the bank would loan me the money to buy the property.
So, I went to the bank to see about that loan. The loan officer didn’t ask me to prove that I could afford to pay $108 per month. He figured the rent payment I would collect could cover the mortgage payment. If he did a credit check, it would have involved a quick call to the local credit bureau, since computers weren’t available to small businesses and the internet hadn’t been invented yet. I’m sure the credit bureau clerk didn’t have much to report because at 19 years old, I hadn’t lived long enough to build a credit history. And yet, the bank loaned me the money.
With a little success under my belt, I began looking for a second investment property to buy. This time, I found a fixer-upper. I was still a college student, which meant I had more time than money, so I figured I could do the repairs myself. The purchase price was $15,500, so the bank only advanced me $12,000 to purchase the property but they appraised the property at the post-repair value of $19,500 and said once the repairs were done, they’d refund my down payment. True to their word, once I fixed all the problems, they gave me my initial cash investment back.
Fast forward 45 years and bank regulations would prevent that loan from occurring. In addition, most lenders wouldn’t let me borrow a dime unless they were confident I could pay the mortgage without having to collect rent to do so. With no credit history and no discernable income today, I’d be turned away in a hurry. Plus, the idea of a college kid doing extensive repairs wouldn’t fly these days unless I had a contractor’s license. Not to mention that the purchase agreements for each property would be dozens of pages long, as opposed to the agreements I signed that weren’t even a whole page long.
I learned two important lessons from those early days. First, I am not a carpenter and never will be. Second, and far more importantly, real estate is a fantastic business with great investment opportunities. I remember a real estate broker who worked in town when I bought my first property here. He used to show prospective buyers houses for sale by leafing through his MLS binder (remember, no computers). He’d say, “Here’s a nice house for $22,000.” Then he’d say, “Gee, I’m sorry, that MLS book is two years old. Let me get the current one. Oh, look, that same property is actually $26,000. Looks like that would have been a good investment. In fact, all these homes keep going up in value.” That was his schtick and it worked well for him.
The truth is, during the last 50 years, real estate has been one of the best investments around. You can leverage the purchases, get tax benefits from depreciation and capital gains, and collect enough to cover the costs of ownership. Whether you’re interested in purchasing property to live in or to rent out, I expect real estate will continue to be an excellent investment.
If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.