Headlines around the world scream in panic about the housing crisis in America. But did you know the Chinese symbol for crisis also means opportunity?

Consider comparing the economy to a game of tug-of-war. When there are winners, there are also losers on the other end. And if you’ve played tug-of-war, you know you can be on the winning or losing side of the game just as soon as the momentum swings in the other direction.

Tug-of-war can be a fun game played at camp that leaves half the players in the mud. But when it comes to your money, it’s no fun to be on the losing side. Wouldn’t it be better if you could jump over to the winning side at all times? It can be done, if you understand the market forces.

Let’s take real estate as an example.
Right now millions of people are on the losing side of real estate. Those who bought property in the mid-2000’s thought they were winners because easy financing allowed them to buy their first home or trade up to a larger home that they normally couldn’t afford. However, when it came time to pay the piper, the momentum quickly turned. Many were unable to make their full payments after the teaser rate expired, and were forced to walk away from their homes.

Who was on the winning side of the tug-of-war at that time?
The property sellers certainly were, since they cashed out at the peak. Banks, title companies, realtors, mortgage brokers and anyone else selling real estate or real estate-related services were also winning.

When the momentum shifted, who became today’s losers?
The banks are certainly the biggest losers today, sitting on millions of repossessed properties worth nearly half of what they were. Certainly the people who lost their homes have taken a hit. Businesses also suffered from the lack of home equity lines that fueled the economy.

Who are today’s winners?
First-time home buyers are in a great position today. If they have saved some money and protected their credit, they have the opportunity to pick though large amounts of housing inventory at bargain prices.

They can get an FHA loan with just 3.5% down payment and lock into a 30-year fixed interest rate below 5%. The combination of low prices and low interest rates makes their mortgage payment cheaper than rent in many parts of the country.

As millions of foreclosed homeowners become renters, we are seeing rents increase. The first-time home buyer will be locked into a fixed payment for three decades – which will be a welcome relief in the upcoming inflationary period the United States will experience.

According to the National Association of Realtors (NAR), 32% of the 4.8 million homes that are selling this year are to first-time home buyers. That means over 1.5M families are growing their wealth by paying off a mortgage instead of paying rent.

Investors are also winners today.
People who have saved money and have good credit can also take advantage of the low home prices and high rents. It is quite common to receive over a 10% return in today’s real estate market as a landlord. Those who can qualify for financing are receiving upwards of 15% return on their money through the use of leverage.

Hard money lenders are also receiving over 12% return for lending money to those who want to buy real estate. And in the “flipping” business (buying distressed property for cheap, fixing it up and reselling), investors are earning as much as 30% ROI.

Who Was On The Winning Side Before and After the Momentum Changed?
Those who bought homes they could afford can ignore the crisis. If they planned to stay in the home, the ups and downs won’t affect them. Each month they make their mortgage payment, they are paying down principal on their loan. Eventually, they can own their home free & clear and even use the equity to purchase investment property..

Those who own rental property and live off the monthly income also could ignore the crisis. They live off the cash-flow from rents. They don’t care if the property value goes up or down because they aren’t selling. Either way, their income has increased because rents are increasing.

Doomsdayers will say that the housing market is hopeless, but that’s only because they are looking at just one side of the tug-of-war. Sellers may indeed be challenged today, but buyers are in shopping heaven.

By: Kathy Fettke, renowned real estate professional and host of her own radio show on KABC in LA; and Greg Uehling, property consultant in Australia.

September 2011

Imagine if you could buy a little machine that spits out $500 cash every month. How much would you pay for such a gadget? Now imagine owning 10 of these cash machines. You’d have an annual income of $60,000 and all you’d have to do to earn that money is maintain the machines.

Welcome to the world of income-producing assets! Income-producing assets can come in many forms. A friend of mine wrote books and over time he became a popular author. His 10 published books are now little cash machines, as they continue selling around the world.

A neighbor bought a fast food franchise, which he successfully reinvested profits to buy 100 fast food restaurants. Now there’s a lot of cash machines!

You can buy laundromats, vending machines, create products, write songs, and sell stuff on a website. You name it, there are many different ways to create passive income so that you can stop working someday. You just have to find the one that works for you.

What if your cash machine broke down and you had to fix it? Would you be upset and throw it away or vow to never own another? Of course not! You’d use one of the month’s cash of $500 for repairs so the machine could continue to spit out cash. If you could use the machine until you die and then pass it on to your kids, there would be no need to worry about retirement or wait until you’re 65 to stop working.

Americans have been duped into thinking that contributing to traditional retirement plans are the same as buying cash machines. As the Baby Boomers head toward retirement, they’re realizing tax-deferred plans that were supposed to spit out cash for the rest of their Golden Years are broken and probably can’t be fixed.

What did the Baby Boomers do wrong?

They lost control.  They handed money over to a stranger.

They lost interest.  They expected the stranger to take as good care of their cash as they would, so they stopped paying attention.

They settled for too little.  They allowed upper-management to skim all the profits.

They got too patient.  They believed what they were told – that if they just waited long enough, the money would be there for them when they needed it.

In order to create a real cash machine, you’ve got to be in control, pay attention, and be able to keep the profits. And most importantly, the machine has got to create real income for you (not a speculative hope to sell it at a higher price.)

Most people expect at least 6% annual return on their investments, so they’d generally pay around $100,000 for a cash machine that spit out $500/mo ($6000 annually). Unfortunately, not everyone has that kind of money sitting around. But what if you could borrow $80,000 and pay it back over 30 years using money from the cash machine?

Where can you find a deal like that? Little cookie cutter homes in good neighborhoods near jobs to be one of the best cash machines available today. When they are rented out to good families, the monthly rent becomes the owner’s monthly income. And as much as people like to complain about the responsibilities of a landlord, it sure beats a 9-5 job! Toilets don’t break every day, and even if they do, the landlord can make it the tenant’s responsibility to fix what they break.

Wealthy people create cash machines in two ways: owning businesses or real estate. Real estate is the simpler choice. Don’t believe me? Ask a lender! Walk into a bank and see how much easier it is to get a mortgage on a rental home than a loan for your business.

Today there are 117 million households, of which 79 million own their own home. That leaves 37 households in need of a rental. Assuming an average of $150,000 per property, there is $3.4 trillion worth of rental property out there. That’s nearly double the size of traditional investments.

If you have not taken the time to learn about real estate as an income-producing asset, you’re listening to the wrong advisors. With home prices slashed, low mortgage rates and rising rents, these cash flow machines have never yielded the double digit returns they do today.

By: Kathy Fettke, renowned real estate professional and host of her own radio show on KABC in LA; and Greg Uehling, property consultant in Australia.