Sunday, September 4, 2016
Black Wealth, Black Assets, Black Real Estate. Or how not to be rich v6
Most Middle Class people have one Major Asset: their home. Other people have a car but no home. And it turns out that owning a home is the same as owning a savings account that will make you rich. There, in 10 seconds is the essence of the Black/White wealth divide. More White people own more expensive homes in more desirable neighborhoods. And smaller relative percentage of Black people own fewer homes in less desirable locations which are worth less.
Which leads to today's topic, how to own a home (or how to get rich)
People ask me how to get rich all the time. And I say the same thing: "Invest in Real Estate" but I warn them that it takes a long time, it's boring and it's defined by racial and class segregation. Cars on the other hand are fun. They just won't make you rich. But real estate is almost always worth more than what the buyer paid for it. Real estate is the best way to build Black wealth.
Black wealth (or the lack there of) has been the subject of several stories over the past year. All lead to the same conclusion, Black people take a hit financial for living in Black neighborhoods. They all mention lower valuations and growth rates and higher foreclosure rates. They never cover the hyper-segregation of Black people in residential neighborhoods in the US. I live in NJ and can count about 30 or less integrated communities on paper out of about 650 municipalities. Jersey City is a good example. The White, Black, Hispanic (multiple) and Indian communities don't really interact. But on paper, it's integrated.
In 2013, Pew Research says: The average White family has a median net worth of 13 times more than that of the average Black family and 10 times more than the average Hispanic family.
News stories in the media on Black Wealth and Real Estate
There are lots of stories in the popular press.
NPR: For The Black Middle Class, Housing Crisis And History Collude To Dash Dreams
Forbes: The Racial Wealth Gap: Why A Typical White Household Has 16 Times The Wealth Of A Black One
More in depth news stories are available here
Pew Research: Wealth inequality has widened along racial, ethnic lines since end of Great Recession
Demos: The Racial Wealth Gap
And, unbelievably, Forbes has some solutions
Forbes: 10 Proposals For Eliminating The Racial Wealth Gap
All the Forbes proposals are standard liberal proposals that require spending money or helping the poor. The current voting majority of Americans basically oppose such programs.
Tools for Building Wealth: Daily Ambition
The key to being rich is daily ambition. It really is just like in the movies: You have to want to be rich. Then you have to make daily sacrifices. Like working a crappy job you don't like to make extra money. Living around people who may not like you. Moving away from your friends and family or studying hard in school.
If you cannot save at least a $1000 dollars a year toward owning real estate, you should look for a better paying job. Or get a second job. You can also look for places to cut back on spending. It can take a long time to build a down payment. And the key to real estate is to build that first down payment. It should take about 5 years of savings to build a down payment on a condo or apartment.
Investment Returns for Education
Education and Real Estate have the best risk to return profile for each dollar invested. Education multiplies you earning potential. Education grants access to more jobs and hiring paying salaries.
Investing in Real Estate
So we are back to Real Estate. Real Estate is one of the lowest risk ways to build wealth.
With real estate, you will definitely get your money back. Real Estate also provides shelter. You are your own landlord and your rent money is going toward your own pocket.
Real Estate is like anything else, the more you know, the better decisions you make. Grab a couple books from the local library or read up on the internet. Make sure to cover the buying and selling process.
Key Strategies for Investing in Real Estate
Buying distressed property / foreclosure, buying a fixer upper or buying a standard home
The location is the most important thing about a house. Location controls everything.
1. Make the right investment. Research locations over and over. How stable is the area. What do the big trends look like. Look for high growth rates, high turnover and population pressures.
2. Buy in up and coming areas with high growth rates.. Consider a fixer upper in the right area.
3. Be prepared to wait while you build equity (usually about 5-7 years before flipping)
4. Leverage one property to acquire additional properties. Pay down mortgage faster to build equity.
5. Keep an eye on taxes. Low tax jurisdictions may have bad services and schools. High tax locals can eat away your profit.
Basically real estate is a waiting game but if you are in the right location you will get a good return on your investment.
Real Life Examples
I know two guys who are millionaires because of real estate. And a third who is not. One bought a condo in Park Slope, Brooklyn, when the area was dicey. It turned around as people could no longer afford Manhattan. The other bought foreclosed properties in Waldorf and La Plata, Maryland and Fredricksburg, Va. He got rich as people expanded out from Washington, DC. Both cities have high growth rates.
The third person lives in Philadelphia and has basically broken even. His property is in North Philadelphia and the greater northeast. Philadelphia has a negative growth rate.
The two millionaires told me to invest in their areas and I did not listen.
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- NPR:Housing Foreclosures in Prince Georges County
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