Almost on a daily basis I get asked about questions in my field, the mortgage and real estate industry, on how I would personally attack a certain situation. So why not just put it down on paper the way I would act, given a certain set of facts? Before I do that, I want to say loud and clear that my way is not the only way, but just the way I believe works best. Are there better ways? Without a doubt, because the field we are talking about isn't scientific, it is artistic. The way I paint the picture may not be the way you would paint it, and it doesn't make mine more beautiful than yours, only different.

Using sports jargon, the old expression "take two and hit to right" probably has been tried over time and found to be a pretty good strategy. Does that mean you can't drag a bunt on the second pitch and accomplish what you set out to do? Get on base? Of course not! Please understand that I am simply laying out some of my preconceived notions that I have been asked about for years. With that understanding I will begin.

My feeling about "flipping houses" is that the term is absurd. Have you ever tried to pick up a house? The practice of buying a house and fixing it up is overdone, not just in this market at this time, but all the time. My wife and I have been doing this for over a decade with success, but we follow a pretty tried and true formula (but not the only one) when we buy the house. We ask the question "How can we increase the value of the house at a price that we can still turn and sell it in the future and make a profit?" If the answer is fixing it up cosmetically with paint and carpet, we will pass on the house. I can't believe that there would be enough profit in the house to take the risk of holding it in any kind of a real estate market.

I believe you need to move a wall or walls and create something of value to make the investment worthwhile. Does that mean we have never purchased a house and turned it over quickly for a profit? Absolutely not. Does it mean that every house we have bought and remodeled has earned us a handsome return for our effort? No on that one also. But overall our strategy has worked out nicely for us.

We only buy custom houses, not tract houses, and generally higher priced ones, not lower priced ones. We don't buy tract houses because anything we do to the house becomes plans for anyone to duplicate with another home in the tract and not pay our price. Higher priced homes afford a better profit, but we are aware that they also could give us a larger loss if we are not careful. Those are our rules and the overall way we operate in the fast growing freelance world of housing speculation.

I am however in the mortgage business and do things differently than others because I believe in paying off my debt with the lowest interest rate for the longest time. This usually means the choice of a hybrid arm, fixed for a period of as little as three months or as long as three to five years. I DO NOT pay the coupon rate or payment, but escalate the payment to 1% of the balance of the loan. This way I get a major pay down of the mortgage because my interest rates are way under the going rates.

Writers note: The inverse yield curve makes it impossible to take shorter term rates at this time in the mortgage cycle and do better than long term rates. Continued...