In real estate, old school advice is still relevant today

Some 27 years ago, I embarked on a career in real estate, spending the next 20 years mostly working in the mortgage finance area. I knew that real estate was a retirement strategy, having been raised in a family and extended family where real estate played a major role. But I always heard the phrase, “You gotta have money to own real estate.

There were a few other nuggets that were also critical: good credit, a steady job. It meant you not only had to have money for down payment, which was typically between 10% and 20%, but you also had to have money in general.

Well, guess what? Nothing has changed!

Many people we know (and maybe even you) lost their real estate holdings as a result of the most recent recession. Regardless of where you stand on what actually caused the recession and real estate market collapse, the bottom line remains: “You gotta have money to own real estate.” Those who maintained their jobs, careers, and savings fared well. Even if the property they owned lost value, they were still able to maintain.

Many people forget that this was not the first time the real estate market was compromised in California. I began buying real estate in the early 1990s and purchased a cute little three-bedroom house. Two devastating things happened shortly after closing. First, four days after I closed, the main pipe from the house to the street broke! I had to come up with $4,000 on the spot! Thankfully, I hadn’t spent every penny on the down payment and closing costs. Then six months later, the economy began to change and the real estate market softened. My cute little house promptly lost about 35% of its value. I could not sell or refinance for the next seven years. But guess what... I was able to maintain because I had money saved! I was also fortunate. But also intentional. I was determined not to lose my real estate. Leveraging is a great thing, but you still have to have cash on hand.

I continue to pass this advice on to all my clients—even my clients who have owned property for years. The basic old school principle of “You gotta have some money to own real estate” is still alive and well.

Never forget that real estate markets are cyclical. Values go up and down. Renters come and go. Mortgage rates fluctuate. But if you want to be a real estate mogul (or even own just one property), make sure you’ve got some cash on hand!

About the Author

Nancy Harris is a licensed California Real Estate Broker and a Broker Associate with Keller Williams Pacific Playa. She is also Executive Director of the Holman Community Development Corporation and serves as a County Commissioner on the Los Angeles County Quality and Productivity Commission.