Question 1: "I had plans to invest in the real estate market but lately the news stories about its poor performance has me a bit concerned. Is now a still a good time to invest in real estate?"

Real estate markets are local, so the answer to this question depends on where you live. Much of the recent press about declining real estate markets has focused on California, Florida, New York and other high-dollar locations that experienced a steep (double-digit) incline in appreciation over the past 5-6 years. Other markets, including Texas, North Carolina & Utah are still moving strong.

One thing to keep in mind is that it is always a good time to invest in real estate, you just have to adjust your investing criteria to meet what the market is doing. When most people think of investing nowadays, they think of “flipping” and “rehabbing”. This is not the only option for investors. In addition, given the current market, flipping will likely not offer as solid a return as other investing mechanisms. For example, the current trend in the US is that the market has slowed down and many of the exotic mortgage programs that prevailed only a year ago are now extinct. For investors, this presents an opportunity. Fewer qualified buyers, means less demand for housing. Less demand for housing means sellers will have to be more flexible in the price and terms they will require to sell their home. More flexibility from sellers means better deals for investors. Given that real estate is cyclical (markets typically follow 8 year cycles), buying in a buyer’s market will ensure a bargain-basement price for an asset that, over the upcoming years, will likely rebound and perform very well. In addition, many would-be new homebuyers are not able to find financing because of the mortgage market meltdown. These buyers will therefore remain renters for a while longer. This means that rental property owners will fare very well in upcoming years.

So keep in mind, not to think short-term when it comes to real estate. Given the locality and cyclical movement of real estate, you can still find very good deals that will set you up for early retirement IF you’re able to think outside the norm and learn your market.

Question 2: "I am interested in starting an investment group among my friends. Should we seek professional help to get things started? If we try to teach ourselves as we go along, what sort of 'newcomer' mistakes should we try to avoid?"

Absolutely. Unless one of the members of your group is well-versed in the type of investing you’re interested in (stock market, real estate, etc…), you will need to bring in this expertise in from the outside to lower your learning curve and get you started on the right path. A few additional points to consider:

1. Make sure everyone in your group is on the same page, and put all of your agreements and goals in writing. A common mistake that friends make is relying too much on their friendship in money and business matters and overlooking some of the smaller items at start-up. This is the easiest way to kill a friendship, because money matters quickly become personal when disagreements arise among friends. Visit The National Association of Investors Corporation (NAIC) website and pick up a book on the topic of starting an investment group as a first task for your group. Their tried and true advice has been used by thousands of investment groups over the years and will help to get you started on the right track.
2. Don’t get attached to the aesthetics of a property or stock investment if the numbers don’t work. Numbers don’t lie. No matter how much you like an investment, if your calculations show that it will not make a good investment, no amount of tweaking will fix it. Move on to the next one.
3. PLEASE don’t take what you read in some of the larger financial publications as gospel when it comes to investing. For example, that “gem” of a sock that no one knows about is no longer an unknown gem by the time you pick up the magazine. By then, millions of others are aware of it and the price has probably adjusted to account for this. Real estate is a bit slower to react given the time involved in a purchase, but keep the same in mind. Many of those headlines are put there to sell the magazine, and you’d probably perform just as well some of the “experts” in these publications, with your own research and that of an investment professional at your side.

Question 3: " I recently graduated and started my first job. I know that it is important to start saving and investing for the future early, but where should I focus my attention now that I am at the beginning of my career?"

Ok, I feel a long response coming, so let me get comfortable. I’m so glad you asked this question, as it is one of the concerns many recent grads have when stepping out into the real world. (I had the same concern many moons ago!) Although I typically focus my advice in the realm of real estate investing and homeownership, given the poor financial investment advice that dominates the air and television waves, I’ll make an exception for this one. Although I am not a financial advisor, some things just make good common sense, so let’s cover a few of them…

Focus is a good thing. When it comes to financial independence, however, balance is the idea to keep in mind as you start out in your career. This means not forsaking savings for investing and vice-versa. You may have heard that you should not invest until you have 6-9 months of living expenses saved in a savings or money market account. This will ensure that you have a comfortable “cushion” in the event that you are injured, lose a job or are otherwise unable to work. On the other end of the spectrum, you may have heard that you should immediately purchase a home and/or other assets at the start of your career. Given that real estate values generally go up in stable markets (like the Raleigh-Durham market has in recent years) you should jump in right away and benefit from getting in early.

In actuality, both of these extremes may leave you at a loss. Focusing only on saving 6-9 months of living expenses, can, depending on your quality of life, take you a year or more. If this is your sole focus, you will have missed out on a full year’s worth of value increase and tax write-offs in your local real estate market. (Remember, you can write off the interest portion of your home mortgage, which translates into a smaller tax bill for you at the end of the year). Plus, with the current trend of regular increases in interest rates, you’ll likely pay a higher interest rate on your mortgage (which translates into a higher payment) than you would have a year earlier. On the flip side, purchasing real estate without having some type of cushion can be considered reckless. Unless you have long-term disability insurance and at least a few months set aside, hold off on the larger purchases (this includes new car purchases and leases as well).

I commend you for getting your mind in gear to save and invest so early on. Many of your peers will undoubtedly set this aside for the later years and miss out on the benefits of starting early. Given that your case is unique to your specific situation, I advise taking on a financial advisor to keep you on track. As a matter of fact, I have an appointment with mine later today. Keep in mind that financial advisors are compensated in different ways so be sure to discuss this with them upon your initial meeting (which they will usually offer for free). In addition, following are a few quick do’s and don’s to follow as you get started:

DO:

2. Start to save right away. It doesn’t have to be overwhelming… $100 per month split evenly between a mutual fund investment earning the historic average of 9% per year, and a money-market account earning 5% a year will land you with over $90,000 in a mutual fund and over $40,000 in cash in 30 years. Now I’m sure everyone can find an extra $100 a month to make an extra $130,000!
3. Investigate some of the online lenders who offer higher-than-average savings account rates. ING Direct, Emigrant Bank and HSBC are a few that come to mind. Since these banks have few, if any brick-and-mortar locations, they pass their cost savings to you in the form of higher returns on your savings accounts. You may be able to have your savings amount automatically deducted from your check every month and sent directly to your savings account.
4. Interview a few financial advisors and start out during your first 3-4 months of work with the goal of saving as much as you can in a savings or money market account. This will set you up for success when you do decide to invest in larger assets (real estate included) given that these may require a small out-of-pocket expense up front.

DON’T:

1. Overdo it when the checks start coming in by buying flashy, non-appreciating assets like cars and other toys. These assets go down in value over time and often, individuals find themselves OWING more on the asset than the asset is actually worth down the line.
2. Put off purchasing a new home or investment property if you are in a market that is on a gradual upswing. Raleigh-Durham is one of these growing markets and has seen steady growth over the years. If you are in a NY, CA, FL or similar market, speak with a few real estate brokers in the area to gauge what the market is doing before diving in.
3. Set aside your intent to save and invest. “I’ll start next month” is an all-to-common phrase that eventually lands many of our counterparts with no savings and no assets decades down the line. Once you fall into that mantra, it’s hard to get out. Set your mind to start saving and investing TODAY, and make your investing commitment an amount that won’t be overwhelming for you. If it feels like you have to deprive yourself of something else in order to do it, you won’t maintain it, so take a close look at your finances and decide what amount works for you.