I am a great believer in owning real estate. It’s the best way the average family has of accumulating wealth. In fact, for many people who are at or nearing retirement age, the equity in their homes may be larger than their 401(k) balance. The secret, of course, is that our wonderful mortgage credit system has allowed you to purchase over a long period of time.
Imagine what our economic system would be like if you had to accumulate the entire purchase price of whatever you bought, be it a home or car or another large asset. Paying for such things over a period of time makes the whole system work. Equity build up is slow but dependable. For homes, unlike other assets, the value increases over time.
For people who already own their homes, there are terrific potential wealth benefits of owning rental property. It may be the difference between a really comfortable retirement and one that’s not quite so comfortable. Again, the trick is to buy a property and have a succession of renters pay off the loan over time. If you plan it properly, when you retire the mortgage will be paid off and the entire rental income minus operating expenses will come to you. And you’ll have a significant asset to your name!
Many real estate fortunes have been helped significantly because home investors have been able to purchase when values are at some cyclical low point, as they are now in many markets. You can certainly buy properties “at market value” and still make money over time. But you can do even better if you are able to buy at a discount. Effectively that means you can lock in a profit.
You can also choose when to take that profit, maybe never if you hold onto the property and it becomes part of your estate.If you buy at a lower price, you can get a lower mortgage which requires less of a monthly payment and can be paid off faster than if the purchase price were higher. You can make money when other landlords are just breaking even.
How do you get started? Well, as a writer, I suggest that you buy a couple of books on buying, owning, and managing income property. The one I recommend you start out with is Property Management for Dummies by my friend Robert Griswold. There are a number of other books on the topic, but this one will get you familiar with the process.
This is a complicated field that has more than its share of pitfalls. There are sellers who want too much for their property who may disguise what might be wrong with it or who may be untruthful about rental income and expenses…. and on and on.
There are tricks that the professionals know but which the amateurs don’t. Here’s one: Statistics demonstrate that properties, particularly small apartment complexes, on busy streets have a higher occupancy rate than those on side streets. You might think that people don’t want to live on streets that might be noisier or busier, but when the FOR RENT sign goes up out front, more people see the sign and the properties rent faster. A week or two more rent every year can really add up over the years.
Everyone who has ever managed rental properties will tell you stories about the bizarre things that renters do, from lying about their likelihood of paying rent on time to intentionally destroying property when they leave. For example, I managed an apartment complex during a time in the 1970s when the price of beef skyrocketed. One of our tenants tried to raise a calf in his bathtub, where he permanently tethered the poor animal. We evicted him, but not before the calf had ruined the tub.
Investing in a home -- and doing it right -- consists of learning about the process and then aligning yourself with professionals in your market area who can help you. Ideally, you’ll create a partnership that will last a long time. When you are successful, you’ll be a repeat client for these professionals.
Let me also suggest what not to do, which is to spend $500 going to a weekend seminar on how to become a millionaire. For a classic case of how not to do it, read this story of a young flipper.
Now, having read that, don’t be scared. Just realize that success can be yours if you don’t go about it the way this fellow did.
http://www.credit.com/credit_information/mortgages/A-Great-Time-to-Buy-Real-Estate.jsp
