The Tycoon Report

Savvy investors are looking at stocks and real estate and making some very powerful moves.

TODAY I'M GOING TO SKIP THE LANGUAGE AND CUT TO THE CHASE.  

Especially for those among us who are either a) about to buy a new home; or b) own multiple properties.  I think if you're still "long" on real estate you are making a HUGE mistake.  

I know what you're thinking.  You're thinking that I've said the same thing several times during the past year.  And housing prices have gone up in some places as much as 18 percent in the past year alone!  In my opinion, you should have been selling into that strength.  

Before I get into what I think you should be doing to grow your net worth to pay for your child's tuition in 10 years, let me break it down for you.  There are six things happening in real estate that will make the coming five years painful for home buyers:  

1. MORE SELLERS THAN BUYERS:  

2.8 million EXISTING homes are now on the market for sale. That's a 26.3% jump from last year.  

2. BIGGER INVENTORY:  

It now takes 4.9 months to sell a new home -- THE LONGEST AMOUNT OF TIME SINCE 1996.  

3. VALUATION:  

Most homes are selling for 20% more than they are worth. That means the $500,000 home you're looking at could be selling for $400,000 in two years.  

Interest Rates are headed higher. When that happens, home prices drop.  

Why do home prices drop?  Because if you can only AFFORD a $2,000 mortgage each month, a portion of that goes to pay interest, and a portion of that goes to pay the cost of the house.  If a bigger portion now goes to interest, a smaller portion is left for the house. 

Suddenly that $400,000 house you're looking for is out of your price range. You have to look in the $350,000 area, because your interest costs have gone up by $250 each month.  

5. SPECULATORS:  

That friend of yours who bought three homes with adjustable-rate mortgages is about to run into some serious problems. You see, right around the time interest rates start rising, one of his tenants is going to move out.  Now, he's going to have to cover the cost of that mortgage out of his own pocket for a while.  In addition, he's paying higher interest rates on his adjustable mortgages, so he's really starting to feel the pain.  

So what does he decide to do?  He decides to sell one of his homes.  But since interest rates have risen, he's going to get less for the home than he thought.  In addition, there are quite a few other people just like him who are beginning to feel the same kind of pain. 

What do they all do?  They all begin to sell their third home.  You know the rest of the story. 

6: SALESPEOPLE: 

I can't tell you how many times a friend of mine has bought a home in one of these new communities in these neighborhoods in Florida.  It's almost disgusting. You drive in and see a big sign that says "NEW HOMES: $300,000."  Instead of buying on the spot, you decide to wait for a few days.  

When you come back to show your friend the house a week later, the sign has changed.  Now it says "NEW HOMES: $330,000."  You run into the sales office and ask what the heck happened. They say that the prices are rising already so you'd better get in.  

You decide to buy.  A year later you see the last house sold in the development for a whopping $450,000! You and your husband are thrilled.  Savvy investors you are -- you just "made" over $200,000.  But who determined why that house sold for $450k?  

Was it the market? Yes and no.  

You see, the "market" in a community like that is the ability of the sales force to introduce the homes at a certain price and move it up systematically.  They are experts at CREATING DEMAND.  In fact, I know entire neighborhoods in Florida whose residents feel that they're rich, because one of these killer sales teams "did a job" at one of these communities.  Don't fall for that, please.  So, what should you do?  

Follow the Three Rules of Almost Every Savvy Investor I Know:  

Rule #1. Do not buy any real estate right now: Rent for the next year and see if prices drop more than the cost of your rent.  I have a feeling they will.  

Rule #2. Sell any excess real estate: If you own a second or third home, and they have adjustable rate mortgages, sell now.  I even know some VERY WEALTHY folks who think prices are so outrageous they've sold THEIR PRIMARY HOMES and are now renting!  

Rule #3: Try Fallen Angel Stocks for 30 days.  You think I threw this in here as a shameless plug didn't you?  Well, you're absolutely correct. I did!  And why shouldn't I?  

Had you followed my suggestions for the past five years, you would have made far bigger returns than you would have made in real estate -- even in the hottest of markets!  

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