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CNN Live Today

Columnist Discusses Real Estate Investing

Aired October 17, 2002 - 10:39   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


LEON HARRIS, CNN ANCHOR: Joining us for his top five tips on real estate investing, back with us today, is real estate expert and columnist John Adams.
Good to see you once again.

JOHN ADAMS, REAL ESTATE COLUMNIST: Thank you, Leon. Good to be here.

HARRIS: Were you surprised to see this run-up in the market and the increase, the huge increase, we saw in housing starts?

ADAMS: I have never been surprised to any anything in the stock market. Anything can happen and will. But the great thing about real estate is it is a necessity. People have to have it. People have to have a place to live. And as a result, it tends to hold its value.

HARRIS: You kind of jumped the gun on us. We're going to try to get up some of the tips that you've come up with. That is number one on the list here, that people have to have a place to live.

ADAMS: Well, they do. We talk about real estate. We say that for most Americans, the best investment they ever make is their own home. Yet we don't think of it the way we think of our stocks and our mutual funds. It tends to go up slowly in value. But unlike stocks and unlike gold, it has basic value. People have to have a place to live in good times and bad. It is a necessity. So I think it's important to separate real estate from these other sometimes of investments.

HARRIS: Let's look at number two: Opportunity happens when owners need to sell. How do you -- what determines when owners need to sell? You would think that in bad markets owners wouldn't be selling.

ADAMS: But they are. People get short on cash. People make poor decisions in their lives. People drive fine cars and let their house go to wrack and ruin.

HARRIS: Yes, that is true.

ADAMS: Whether it's death, divorce, whether it is a financial challenge, a health challenge, any of these things can cause people to need to sell their house. A lot of times they just want to move on with their life. When that happens, it can create an opportunity for a buyer who is ready to buy. HARRIS: This third one is something we were talking about off camera before we came back from Montgomery County here: Investment in real estate generates income. For those of us who are skeptic, explain how that works.

ADAMS: This is another reason that it is different from gold, it's different from stocks. Gold doesn't generate any income. Stocks used to generate income. Now we're not sure what they do. But you can always rent a house, and that rent can be used to make the mortgage payment and pay for the property. You can get great tax benefits along the way. The property is going up in value. Over a period of time we're paying down that mortgage. So at the end of a period of time -- and remember, I keep stressing "period of time"; real estate is a long-term investment, this is not get rich quick -- but the key is after a period of time you own the house free and clear, you still have income, and you've got an investment that's gone up in value.

HARRIS: Real quickly, what is the margin on the income here?

ADAMS: It may be very small. We call that break-even cash flow where the income actually matches your expenses. And actually, that's our goal because that moves directly into number four, which is tax benefits. If we have a break-even cash flow, which is our target, then we get a noncash expenditure called depreciation, and that's a tax shelter. Everybody says there are no more tax shelters. There certainly are in residential real estate.

HARRIS: Last, finally, homes tend to go up in value. Key word being "tend."

ADAMS: Well, "tend." What happened was, President Theodore Roosevelt said well-selected residential real estate always goes up in value. We certainly have markets that have been superheated over the years -- New York, Los Angeles, San Francisco -- but if you look at the average market in America, the house still tends to be a good value, and over a period of time it goes up in value. That has not changed during good times or bad.

HARRIS: All right. If I wanted to get started in investing, who besides John Adams do I go talk to? For the benefit of those who are watching this morning.

ADAMS: I would read a book called "The Millionaire Next Door" by Danko. It talks about real estate as an investment. It says it's for most Americans the best investment they ever made.

HARRIS: It was a good investment of our time to have you come and explain all this.

ADAMS: Thank you, sir.

HARRIS: John Adams, good to see you again.

ADAMS: Thank you.

HARRIS: Take care. We'll get back to you later on.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com






Aired October 17, 2002 - 10:39   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
LEON HARRIS, CNN ANCHOR: Joining us for his top five tips on real estate investing, back with us today, is real estate expert and columnist John Adams.
Good to see you once again.

JOHN ADAMS, REAL ESTATE COLUMNIST: Thank you, Leon. Good to be here.

HARRIS: Were you surprised to see this run-up in the market and the increase, the huge increase, we saw in housing starts?

ADAMS: I have never been surprised to any anything in the stock market. Anything can happen and will. But the great thing about real estate is it is a necessity. People have to have it. People have to have a place to live. And as a result, it tends to hold its value.

HARRIS: You kind of jumped the gun on us. We're going to try to get up some of the tips that you've come up with. That is number one on the list here, that people have to have a place to live.

ADAMS: Well, they do. We talk about real estate. We say that for most Americans, the best investment they ever make is their own home. Yet we don't think of it the way we think of our stocks and our mutual funds. It tends to go up slowly in value. But unlike stocks and unlike gold, it has basic value. People have to have a place to live in good times and bad. It is a necessity. So I think it's important to separate real estate from these other sometimes of investments.

HARRIS: Let's look at number two: Opportunity happens when owners need to sell. How do you -- what determines when owners need to sell? You would think that in bad markets owners wouldn't be selling.

ADAMS: But they are. People get short on cash. People make poor decisions in their lives. People drive fine cars and let their house go to wrack and ruin.

HARRIS: Yes, that is true.

ADAMS: Whether it's death, divorce, whether it is a financial challenge, a health challenge, any of these things can cause people to need to sell their house. A lot of times they just want to move on with their life. When that happens, it can create an opportunity for a buyer who is ready to buy. HARRIS: This third one is something we were talking about off camera before we came back from Montgomery County here: Investment in real estate generates income. For those of us who are skeptic, explain how that works.

ADAMS: This is another reason that it is different from gold, it's different from stocks. Gold doesn't generate any income. Stocks used to generate income. Now we're not sure what they do. But you can always rent a house, and that rent can be used to make the mortgage payment and pay for the property. You can get great tax benefits along the way. The property is going up in value. Over a period of time we're paying down that mortgage. So at the end of a period of time -- and remember, I keep stressing "period of time"; real estate is a long-term investment, this is not get rich quick -- but the key is after a period of time you own the house free and clear, you still have income, and you've got an investment that's gone up in value.

HARRIS: Real quickly, what is the margin on the income here?

ADAMS: It may be very small. We call that break-even cash flow where the income actually matches your expenses. And actually, that's our goal because that moves directly into number four, which is tax benefits. If we have a break-even cash flow, which is our target, then we get a noncash expenditure called depreciation, and that's a tax shelter. Everybody says there are no more tax shelters. There certainly are in residential real estate.

HARRIS: Last, finally, homes tend to go up in value. Key word being "tend."

ADAMS: Well, "tend." What happened was, President Theodore Roosevelt said well-selected residential real estate always goes up in value. We certainly have markets that have been superheated over the years -- New York, Los Angeles, San Francisco -- but if you look at the average market in America, the house still tends to be a good value, and over a period of time it goes up in value. That has not changed during good times or bad.

HARRIS: All right. If I wanted to get started in investing, who besides John Adams do I go talk to? For the benefit of those who are watching this morning.

ADAMS: I would read a book called "The Millionaire Next Door" by Danko. It talks about real estate as an investment. It says it's for most Americans the best investment they ever made.

HARRIS: It was a good investment of our time to have you come and explain all this.

ADAMS: Thank you, sir.

HARRIS: John Adams, good to see you again.

ADAMS: Thank you.

HARRIS: Take care. We'll get back to you later on.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com