Where to Invest Your Money during Recession: Real Estate

When you heard about real estate investing in today’s recession, the majority would react by saying, “avoid at all cost.”

The sub-prime mortgages, the sky-high interest rates, and the sharp decline in value - all seem against real estate investing.

However, I encourage you to have a surfer’s mindset that I have occasionally mentioned in my previous posts.

The surfer mindset

Surfer loves challenges. In fact, challenges are what make a surfer perform.

For example, in a surfing competition, weak tides can be a huge, single, factor that will fail the surfer to win the competition. The stronger the tides, the more challenging they will become and the better the surfers showcase their surfing skills.

However, take heed - if your surfing skills are somewhat low, strong tides will swallow you; The key is utilising the right skill sets on the right opportunities.

In your personal finance, you need to increase your financial knowledge in order to ride the right waves, with the right skill sets. Playing too safe will hinder you from achieving the financial milestones you have set. Exposing yourself to risks too much will put you into financial difficulties, even personal bankruptcy.

One of the waves in today’s tide of recession: real estate investing

Real estate is one of the hardest hit sector that causes property owners and brokers alike struggling financially.

If you thought about investing in real estate during recession, it wouldn’t be the right decision to invest your money.

Or, is it?

Many real estates are losing their value - how can they be a good place to invest your money?

Robert Kiyosaki, the best seller writer of Rich Dad Poor Dad series, stated controversially that a house is not an asset, because it is not putting money in your pocket.

General public and many experts are slamming him for such controversial statement, but his statement proves true in today’s recession.

Homes are losing value, the interest rates are high, and the demand is low - the dreaded sub-prime mortgage.

However, as everything in life, there is always a good thing in every bad thing.

Today is probably the best time to invest in real estate, for one reason: Higher mortgage interest rate = Lower real estate demand = lower price tag.

As the real estate business crashes, property prices are in decline, too. Foreclosures are everywhere - this means, opportunities are everywhere, at a discounted price tag. Of course, your eyes for real estate values and prospects play an important role.

One last advice: never invest in real estate with an expectation that your property’s value will go up - it’s not always the case. Instead, invest with cash flow comes first in mind - your property as a rental property.

Image by terren in Virginia.

Real Estate Market Slowdown: It is Time to Self Direct Your IRA to It?

The real estate market is in a decline, with some experts say that it will reach the bottom-low valley in two or three years. Worsen by the credit crunch, the real estate market is now in a defensive position.

Right? Well, not entirely.

Some investors and businesses are thriving in the real estate market - foreclosure ‘hunters’, buy and rent back, and other opportunities.

Another way to take benefit in today’s real estate market slowdown is investing in real estate through self-directed IRA.

What is self-directed IRA?

The IRA (Individual Retirement Account), along with your 401k is often invested on the stock market, which is the reason why many people lose their retirement fund due to the stock market crash.

It is about time to be independent in managing your personal finances. Knowing and understanding the whereabouts of your money is key in protecting yourself from economic downturn, as well as allowing yourself to find better investment vehicles for your hard-earned cash.

One of the ways to enjoy the pretax savings, as well as deciding how you want to invest your retirement fund (and how much profit you want out of it) is through self-directed IRA.

According to Wikipedia.org:

A Self-Directed Individual Retirement Account is an IRA that requires the account owner to make investment decisions and investments on behalf of the retirement plan.

In essence, through a self-directed IRA, you can invest your retirement fund not only on the stock market, but also on many investment opportunities, such as real estates, franchises, partnerships, and many more.

Not all investments are allowed within a self-directed IRA account, though - for example, investments in the form of life insurance or collectibles.

Nevertheless, the self-directed IRA offers you a way to grow your fund with the most yielding investment methods.

Self-directed IRA to secure your money and give you peace of minds

Choices liberate people - Freedom (with responsibility) allow people to choose what’s right for them. Therefore, this will give them the confidence and peace of minds in living their life.

With so many scare stories about people filing for personal bankruptcy or losing their life saving these days, people need ways to control their own destiny.

A self-directed IRA can offer you just that.

One caveat, though - freedom without knowledge is fragile.

In personal finance, such freedom can liberate people to invest in the most yielding or the safest investment vehicles of their choices. The choices are highly dependent on the people’s financial knowledge and personal traits about money.

Why I recommend directing your IRA to real estate

I am not a real estate expert, but I learn from experience and from the mentors I have that to achieve great riches, or at least higher yield of your investment, you need to invest when the time is bad, such as today’s recession.

I mentioned above about foreclosures ‘hunters’ and buy and rent back opportunities - those people, often negatively reputed as vultures - because they are said to benefit from other people’s misery, are actually taking the opportunities to help people getting out of debt, as well as creating wealth out of it.

This niche market in the real estate industry is flourishing today, and I, again, recommend you to direct your IRA to real estates or real estate business.

How to open a self-directed IRA

You can set up a self-directed IRA account through companies that offer you such service, such as IRA123.com.

There are set up fee involved, but choosing the right partner can allow you set up the account fast and properly.

I recommend you to seek information on such companies, to see whether the one you want to help you set a self-directed IRA account offer more benefits than the other.

One of the benefits to look for is a company that is not only helping you set up a self-directed IRA account, but also holding real estate licenses or offering business financing to help you invest in real estates or businesses.

Do you want to secure your money and have a peace of mind? Control your retirement fund uses through a self-directed IRA account, as the real freedom is achieved if you can control your life and personal finance.

Image by respres.

The Neurobiology of McMansions

How Our Brain Structures Led to the Housing Crisis

McMansions.

That is the derogatory term that arose the last few years for the large cookie-cutter suburban subdivisions that seem to have sprung up everywhere. You may have driven through these subdivisions and, much like me, wondered where so many people found so much money. I know what I make. I know I’m in the top 5% or so of income earners. So why don’t I have a top 5% McMansion?

In retrospect, it has become obvious that many of these people could not afford what they bought. This leads to the question of why they bought houses that pushed the limits of what they could pay. Blame it on their brains.

It is a sad but true statement about the human race that we don’t care about absolute wealth. We care about relative wealth - how much wealth we have compared to other people. We don’t want a higher standard of living if everyone else has it too. Some books would say it is all a result of an elaborate mating game. Women and men, in an ever more intense race to impress each other, attempt to make it look as though their income and success are much higher than they really are. But it goes deeper than that. The problem with the housing market can be blamed on the ventral striatum.

Last year, the neuroeconomics lab at Bonn released the results of a study or reward that involved scanning the brains of participants. What they found was not just that brains responded well to a reward. They found that brains responded even stronger to a reward that was better than the reward given to others. The experiment involved pairs of male volunteers competing for prizes on the same task. The BBC article about the research explains it well.

Both “players” were asked to estimate the number of dots appearing on a screen. Providing the right answer earned a real financial reward between 30 (£22) and 120 (£86) euros. Each of the participants was told how their partners had performed and how much they were paid. Using magnetic resonance tomographs, the researchers examined the volunteers’ blood circulation throughout the activities. High blood flow indicated that the nerve cells in the respective part of the brain were particularly active.

Neuroscientist Dr Bernd Weber explains: “One area in particular, the ventral striatum, is the region where part of what we call the ‘reward system’ is located. In this area, we observed an activation when the player completed his task correctly.”
A wrong answer, and no payment, resulted in a reduction in blood flow to the “reward region”. But the area “lit up” when volunteers earned money, and interestingly showed far more activity if a player received more than his partner.

This indicated that stimulation of the reward centre was not merely linked to individual success, but to the success of others.

You may have heard about “keeping up with the Joneses.” This research shows that it isn’t just something that affects a few of the more shallow among us. It is a real human need with a deeply rooted anatomical cause.

So back to the McMansions… what is a man to do… let all of his friends have the bigger, nicer, newer house? It seems that the drive of the ventral striatum outweighed the rational thought process for many people. All the while, lenders and investors, whose ventral striatums were firing like crazy as they tried to rack up larger earnings and returns, respectively, played along to satisfy that same deep seated need to be better than the next guy. The irony, or perhaps the karma, is that most of them ended up looking worse.