As someone that is excited about real estate I often get in conversations with people about rentals and real estate investments. I've been asked so many crazy questions even from people in the industry.
For example:
- How much more should I charge for rent than my mortgage payment?
(Ans. Rent is dictated by the market not your bills. Just make sure you can afford your payment based on what you can charge for rent.)
- Aren't you worried about the value of the home going down?
(Ans. No, my ability to pay the mortgage is not influenced by the value of the home. Plus, real estate is best as a long term investment so I don't care about a couple bad years.)
- The stock market has a higher rate of appreciation. Why wouldn't I put money there instead?
(Ans. This is my favorite. I even read a news article that was answering the same question and they also wrongly concluded stocks are better. Anyone that thinks this really misses the biggest advantage of real estate, leverage. For example, If I have $10K. I can buy a $100K house or $10K of stocks. Right from the start I have a bigger asset with real estate and that $100K house will appreciate faster at 10% than the $10K of stocks will at 15%. Plus, if you want to take money out of the house you can borrow against it and you don't loose the asset. Try taking money out of your stocks without loosing the asset. You can't because the asset is the money.)
- Isn't it risky?
(Ans. I'm never sure how to answer this. Is there risk? Yes. In my opinion there's not much risk because I understand it. Plus, what is the alternative? Do nothing? If you always avoid risk you're not ever going to do anything.
- Aren't you worried that a tenant will destroy the place?
(Ans. Not too much, I do have to be prepared for such a thing and proper screening does reduce that risk. Plus, how much damage can one person do? Even if they did a lot and the bill was $5-10K, I make more appreciation than that in one year. So as long as I'm able to afford it then it is still a great investment.
Real Estate is not complicated. To be successful with real estate you don't have to find the perfect deal. You don't need to order books and tapes from infomercials and you don't need a complicated spreadsheet to determine if a property is a good investment. If you want to be a successful real estate investor you only need to understand this one big secret: remember what homes used to cost? Now they cost more. That's it. (Granted sometimes the market is down but in the long run it has always been true). Other than that, get some good professionals on your side to take care of the details.
People always look back and say things like, "I should have bought back then", "I wish I had just done it", "that property is worth so much more now", "imagine if we'd bought a couple houses back then." But they didn't buy because they wanted a better deal or they were unsure of the real estate market or they wanted to save up more money, etc. Here is a valuable tip: When it comes to real estate waiting to buy is rarely a good financial move because then appreciation is working against you instead of for you. Especially now, there are great buys out there.
For more information on property management check out our short videos and information in the owners section of our website.
Jeff Stinson
Property Manager
801-787-1177
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