The mechanics of real estate

There is an old saying that you should never borrow money on something that will go down in value.

This is where most people get themselves into trouble. They purchase a new item on credit & if they ever want to cash it in to pay off the debt they still have a loan remaining on thin air.

Rent is dead money & so is paying interest to banks, whether it be for a property, car or a plasma tv. The difference with housing is that over time the land value component increases, wages increase & rents increase. So long as you don’t go refinancing to buy cars, boats, etc on your house, the repayments for the home eventually become less than what the equivalent rental payment would be. When this happens you generally have a lot more disposable money to pay chunks off the mortgage or do other stuff.

The hard part is when the market gets over heated as it recently has. A lot of people are losing thousands of dollars in hard earned savings. Whilst it is devistating for many – it’s not right to blame real estate as a product. It’s the excessive financing that has caused the majority of the problem.

The basic fundamentals of real estate are set in stone & provides a sound investment for many home buyers. Unfortunately a lot of people jump into the real estate market when it’s going up & in any market whether it be real estate or shares when you buy at the top of any cycle there is only one way that it can go.

A few years ago real estate agents had to do very little to sell a property, now when the market is down and there are more sellers than buyers, it’s going to take a lot more effort to hold a sale together. Add to that all the information that is now readily available to buyers & sellers over the internet – you’re going to see some radical changes within the whole real estate industry.

Agents need to understand Gen Y’s needs a lot more & the Gen Y’s need to understand the mechanics of real estate & the consequences of borrowing too much money.