Starting Real Estate

I ended up withdrawing from my Real Estate Finance. It’s a bummer because the class was the most interesting one I’ve had in few years. I loved the teacher and the material. Unfortunately, the class started before seven, and the commute from work takes two hours during traffic. As much as I loved the class and would do everything I could to take it, I just couldn’t leave early without having my projects all finished up and the next few weeks look very filled. Things changed a bit. I got an offer I couldn’t refuse. But with great opportunity comes greater responsibility and a lot less time and energy. I’m still in the online Principles class, but it’s a bit sad compared to learning from learning in a classroom with an interesting teacher. On the bright side, I can do all my reading in the time it took me to drive to the class.

I finally did it. Finished my first Real Estate course. In hindsight, I’m very glad I took the course the way I took it, online, one month, through a JC. The best thing about it was that it forced me to keep up. Some people have the skills and motivation to chug through indefinitely, but I found the fact that there was so much to do and so little time kind of empowering. I knew that I had to get it done or else I’d have to take it over. I didn’t figure out the final was today rather than on Friday until the end of weekend, so the last few days I went through half of the course material. I took the midterm last night and the final this afternoon.

What’s Principles of Real Estate all about? It’s an overview of the entire field and it’s great that that’s the first one we get to study. I found a lot of it very lawyerish, with laws and terms everywhere, but it gives some really interesting insights into how money and property works. Although at first I thought I liked a different book more, I’m actually really happy with the Huber’s California Real Estate Principles. It does a great job and has solid breakdowns of everything. After taking notes from it and doing the quizzes I feel I learned a whole lot.

So what’s the plan now? Further studies: Real Estate Practice and Real Estate Financing or Economics. I really want to take an online business course, but I think staying healthy and getting at least five hours of sleep might be worth not taking on too much. Licensing: sign up to take the test at the end of the semester. Work: take the time to visit a few Real Estate offices, shadow a sales agent, appraiser, and broker within the month and a half.

The past two weeks have been destructive. Between programming, tutoring, and everything else, I haven’t been able to keep up very well. Not good news for a Real Estate Principles course that’s only four weeks long. This week I have to take the midterm, finish the rest of the book, and take the final by next weekend.

While studying some math problems I made an amazing discovery: You pay interest first. Always.

Say you take a loan for 100,000 at 10 percent. That means every year you have to pay 10,000 in interest. 10,000 divided by 12 is 833.33 bucks a month. That means if you pay 1,500 a month, only 666.66 will go toward the principal (the amount you money you borrowed). That means that over half of the money you spend will pay for the interest, not the money you actually owe!

Why does this matter? Because the amount you owe is the you pay the interest on. So if say for a few months you pay 833.33, guess how much of you’ve paid back? Nothing. You could pay 833.33 forever. The first 833.33 just goes to pay for the fact that you’re borrowing that money. Only after you pay down your principle does your rate go down.

Now most homes in California, at least in the Bay Area, cost a lot more than 100,000 so that means that unless people are paying several thousand each month, they’re not making any progress and are actually accumulating debt.

The only offset to this is the values of the properties keep growing. So if the property value grows faster than the 10% and they can transfer or close the loan when they sell the house, then they can actually make money while technically in debt. This kind of borrowed money, used to invest, is called leverage. Some people make a living off this. They take loans, invest, and the investment grows faster than the interest on the loan. The only problem is what happens on a failed investment.

What’s crazy about this example is how fast interest can compound. If someone has a loan for 100,000 at 10 percent, and they pay 1,500 a month, they would end up paying for 9 years, and end up paying over 50,000 on interest.

Now take a house at 500,000 at 10 percent interest. Paying off the loan at 1,500 a month, a person would accumulate 3,200 bucks in additional debt the first year, and 35,200 the second, and this amount would only grow. Crazy huh. The person would have to pay 4,700 a month just not to gain any debt.

Big numbers, huh. Now bank rates actually make a really big difference. If say that 100,000 was under a rate of 8 percent. Only a two percent difference. That means the person would end up paying their loan off a year earlier and would pay 15k less on interest.

Similarly, paying more makes a huge difference too. Say instead of paying 1,500, someone paid 1,750. Not a huge difference, but lets just see the impact, at both 8 and 10 percents.  At  8 percent, those extra 250 a month would save an additional 6k and pay the loan off a year faster. For the 10 percent loan, those extra 250 would let a person pay off the loan in seven years and save over 10k on interest too.

This really makes you think not only about money owed but money you get paid interest on. If you have money in a savings account getting a whopping two percent interest a year, imagine the difference in how much one could accumulate if they put it into a CD at four percent, or better yet invested in something that could give seven or eight.

My company had a very busy and important week. Came home around eleven almost every day. Five hours of sleep. I tried to study in the mornings, finishing Chapter 4: Agency and Its Responsibilities right now (last chapter due this week).

I was wondering, where one would need to go to learn how to invest in real estate in other countries. After I attain a certain level of success, I’d like to take some time and savings and go back to Thailand to study for my advanced examinations. This would require knowing exactly what I’m going for and what those examinations would be, and at least fifty thousand dollars. While there, I’d like to buy a place to live. Maybe a bit farther from Bangkok, by Chiang Mai or maybe Hui Hin, as an experiment. I’m pretty sure international trade, business, or law are the fields to study to learn that kind of thing. One would definitely have to sit down and talk with a lawyer and tax expert, and definitely would have to have some practice here, and do some research here.

It’s really interesting, reading Real Estate Principles, how much of the course is memorizing vocabulary. The class is like an introduction to law. It’s very different from what I studied school. Perhaps the closest it comes to is my Introduction to Analysis math class. There we’d have tons of definitions and we’d have to use them to deduce and prove theorems. We haven’t gotten to any proofs here, but I’m guessing that’s the law aspect that’ll come later. Right now, there’s a lot to learn, but it’s new and challenging without being overwhelming. Hope I can keep up with everything.