This age old expression has been widely used for years.  Its application extends into the real estate arena as well.  It is noteworthy, though, that when it comes to investment and financial freedom, pride should have nothing to do with the decision to own a home.

In previous articles I have commented on the many avenues to wealth that real estate investment affords.  Even when it comes to one’s personal residence, it’s good to think like an investor.  Since a healthy percentage of U.S. voters also own their homes, it stands to reason that many laws would be in place that protect and assist these homeowners.  And that is exactly what has occurred!

Federal tax laws do favor those with a mortgage.  Why over 90% of each typical mortgage payment is fully deductible, while personal rent is not.  In most cases, this will far exceed the standard deduction and provide the homeowner with significant tax savings.  That is simply money in your pocket!

Added to that, take the depreciation factor.  Congress allows you to deduct the “improved value”(often 75% of the purchase price)from your taxes over a period of several years.  Again, that is significantly more money in your pocket each year.

Another exciting shelter the government provides is the exemption homeowners are allowed upon sale of their primary residence.  This is my favorite.  Every couple of years or so, you may sell your home and move.  Any gains(profit)realized from the sale can be yours tax free.

Here is the stipulation:  You must have lived in the property at least two out of the last five years to qualify.  This can be done to the tune of $250,000.00 each time.  Married couples can go up to $500,000.00 without paying any gains taxes.

How about that?!  There really isn’t much more one has to do to qualify for these advantages.  This is a sure way to financial independence if one follows the “buy low, sell high” principle.  Today’s real estate market is positively the best in decades for doing just that.

So, the wisdom of homeownership is clearly measured in dollars and cents.  Pride should not be a consideration in making decisions that will affect your financial future.  However, if you like, be proud that you had made your single best economic move when you decided to buy your home.

We have heard a lot about the part Wall St. has played in the downturn of the housing market.  And we cannot ignore the fact that certain government policies have allowed the banks free reign with the nation’s money without substantial accountability.  Before we put the “black hat” of sole responsibility on these institutions, let’s examine another essential factor.

There is a storm of epic proportions brewing as we speak.  While the government is in crises, the largest market of the century is passing their peak spending years and a record number of these are heading into retirement.  America is traditionally driven by consumer spending.  Over 70% of the nation’s Gross Domestic Product (GDP) is represented by consumer spending.  So, how people as consumers spend their money is the largest influence on our economic report card.

Spending patterns are very predictable, at very predictable times in one’s life.  Thus, at ages 46-50 we usually see families earning the most and putting their kids through college.  They will likely spend the most during these years.  Whereas, during their 50s, couples become “empty nesters” and significantly reduce their expenditures.  Once they reach age 60 they are moving into retirement, which for all intents and purposes, is when people traditionally spend the least.  Hence, the boom in consumer spending from the “Baby-Boomer” is coming to an end.

The point is that trends can accurately be predicted years in advance based purely on demographics.  The age and stage of life determine spending patterns.  As financial expert, Keith Springer of Capital Financial Services states:  “As we move through stages of life which correspond with different ages, we change our spending in very predictable ways.  What we buy at each stage is predictable and consistent.”

Now, consider something we call the “adjusted birth index.”  Fewer babies were born during the great depression than either before or afterward.  Thus, we would expect that 48 years later (the stagnant 1970s) there would be less middle age people.  Alternately, “Generation X” represents the children of the “Baby-Boomer” (born 1946-1964).  Alarmingly, “Generation X” cannot physically keep up the pace of spending set by the “Baby-Boomers.”

We must acknowledge that great busts generally follow great booms and the bubbles they create.  The most likely situation would be with a decline in the real estate sector.  We have already seen the effect on real estate, which likely will not rebound for quite a while when the “Echo Boomers” begin to buy their first homes.  There simply are not enough people to absorb the homes of the current generation, coupled with the ridiculous pace of building during the first seven years of the new millennium.  Clearly, there is just too much housing “inventory” on hand and not enough people to occupy these homes (consult my recent article on Supply and Demand).

In conclusion, it pays to be well-informed before launching out into real estate investment.  If you buy for cash flow, it can work to your advantage as values have finally come down to favorable level.  If you wish to “fix & flip,” this too can prove profitable provided you do not plan on holding onto the property for an extended period.  Avoid involved remodeling projects and stick with simple rehabs when you buy houses and you should do quite well under these prevailing stormy economic conditions.

A number of realtors across the country can be heard making claims that we are ‘finally in a recovery.’  They like to site the summer’s sales figures as evidence.  Let’s examine the facts so we aren’t mislead by, for all intents and purposes, the sales people.

The labor Department has reported consumer prices rose 0.2% in September.  For the year, consumer prices are down 1.3%.  This provides the Federal Reserve incentive to hold interest rates at record-low levels with the idea of giving the economy a needed boost.

In the week ending October 10, initial claims for unemployment benefits fell by 10,000 to 514,000.  This figure came in a little lower than expected.   The number of people still claiming jobless benefits in the week of October 3 fell by 75,000 to 5.99 million which is the lowest number since last March.  Sound encouraging?  First consider this:

From National Association of Home Builders:  “The pending expiration of the $8,000 first-time buyer credit made for a disappointing 1 point dip in the October housing market index to 18, according to the NAHB.  All components dipped in the latest report especially traffic which fell 3 points to 14. The results hint at a step back for housing which had been on the rebound thanks to government stimulus.”

From Associated Press:  “The Commerce Department released its monthly report on housing starts Tuesday, saying they increased in September by a modest 0.5 percent to an annual rate of 590,000 new homes and apartments. Applications for new building permits, however, fell by 1.2 percent to an annual rate of 573,000 units.”

The facts tell a bit of a different story!  In the light of the current economic trend many savvy, educated and well-employed families with 6-figure household incomes are assessing the damages and opting out of their homes now.  This will clearly fuel the foreclosure fire for some time yet.  Luxury homes will be – in fact, already are in default like never before in our lifetime!  That’s right.  The next wave of foreclosures will bring a flood of higher-end properties!

I have stated for some time now in my blogs, speeches, webinars and on my website, that this thing isn’t over yet – far from it.  I do not see millions of educated, well payed Americans all taking the housing value implosion sitting down!  The American way has historically been to take more than you give.  Most people will not accept this short fall of hundreds of thousands of dollars.  They will wrestle with the moral dilemma for a while but, in the end, will do their best to sell their home short and cut their losses.

In the long run, they will have taken a hit on their FICO scores that will be sustained for at least 2 years. Once their credit has reached an acceptable level they will purchase again – this time, at a much lower price.  Do the math.

At this juncture I must interject the personal note that I do not agree with reneging on any contractual arrangement and I will not encourage anyone to default just for the sake of escaping their obligations.  Nonetheless, my company had aided many families to find solutions once they are already in default.  This means even providing them the opportunity to remain homeowners even when they have had to short sell their home.  Remember this, it took America years to get to this point and it is not going to suddenly correct itself unless we learn to discipline ourselves and control our spending habits.  Don’t hold your breath waiting for that to happen!

Strapped for cash!  Economic uncertainty!  Fear of the unknown!  These are some of the emotions that govern the thinking of most people today.  Nonetheless, the fact that real estate investment is still the smartest way to achieving financial independence remains irrefutable.

Wasn’t it Carnegie who originally said to “get aggressive when everyone is fearful, and be fearful when everyone is aggressive?”   Recently Warren Buffet was quoted as repeating the same adage.  If these famously wealthy businessmen agree to that strategy, then one has got to get busy now!

Earlier this year I was in San Francisco and saw a billboard.  It read:  “Bill Gates stared Microsoft during a recession.”  Are we seeing a trend here?  It would seem that the most successful see opportunity where others see peril.  Are you programmed like these entrepreneurs or are you like the majority of the world’s population…motivated by emotion?  If you feel you are in your element with these great history-making men, then you likely see that we are at the right place to create wealth in this housing value decline.

More pointedly, I believe we are facing the perfect storm for cash home buyers across the United States.  The secret is out and many Europeans, Asians, Middle-Easterners and others have recognized that America is on sale and they are already scooping deals on our home turf every day!  So, to answer the question at the top of the page:  Yes.  Only IF you see the “glass half full.”

Before embarking on any business venture it is always wise to do your research, set a mission statement and plan of action.  Before that, though, one must do some soul-searching in order to determine whether he or she is proceeding with the mindset of the great entrepreneurs or plagued with the typical negativity of the general populace.  Make sure you have a clear vision of the opportunity and determine to KEEP that vision clearly in mind.  Maybe even write it down and hang it on your refrigerator door, but do it.

It is imperative that a new real estate investor seek the right groups and networks in order to conclude deals with ease, moving quickly onto the next one.  A website you can check out is www.invesdoor.com for an example of a reputable group.  They have an extensive buyers list from all over the world and independent territory managers nationwide.

Another factor that has played into the success of most if not all wealthy capitalists is having a mentor.  There has usually been someone behind the scene coaching and leading by example.  Ask anyone who has done something of high significance and they will likely tell you of those who inspired them.  The REI market is no exception.  We all need a mentor at some point.

Unfortunately, there is no end to the “gurus” wishing to sell us some “program” for a lot of money.  In reality, their responsibility ended when your payment was processed.  In my opinion, it is best to find a mentor willing to teach you and then partner up with you for a time, splitting the profits off each deal.  That’s what your business will need entering the uncertain market conditions of the future.  So cheer up!  Do some self-analysis and adjust your thinking to “positive.”  Opportunity is knocking.