In the background and always present of any Real Estate transaction is the rental aspect of it. People buy homes to live in but they still have a rental value as does vacant land, retail and commercial spaces. In fact when I was doing appraisals it was considered a very important value dynamic for making loans and investments.
POSITIVE or NEGATIVE
Some properties pay-off right away (positive cash flow) if priced or managed correctly while others have what they call a negative cash flow. For those that can afford that monthly loss until equity appreciation & markets turn get the rewards of a positive cash flow eventually
Not many agents or principals have a mind frame of buying income property when entering Real Estate. Residential sales for owner occupancy is the standard. If one was to pause and consider buying something to rent out it that decision guarantees a profitable income/investment down the road
Lets say that instead of buying a single family residence you consider a duplex, triplex or a five unit. You may sacrifice a little privacy upfront but over the years that sacrifice sets you up for greater things. That's the choice. Suffer inconvenience now to have greater latitude later.
Today it is not uncommon to even buy a home and rent it out. That is an interesting concept because if you buy in a lesser area which is more affordable, your "going-in" expenses are less and your money is sitting in Real Estate as you plan for your first home of choice. Of course we are back to management
RENTING OUT SINGLE FAMILY RESIDENCE
The benefit of buying a starter-home to rent out are numerous. The tax benefit we know as well as the investment advantage. Should one wish to move-into their unit at a later time they may. Also, they can either keep the unit or trade-up to another level in Real Estate. Owning gives access to wealth choices
CAN YOU MANAGE?
Management looks so easy and in concept cannot fail except for one thing: Human Nature! One never knows what will happen or can happen or what is happening with someone wanting to rent. Consider also it is more of a business and requires experience or it can become costly to learn as you go
That sign attracts so much attention from all walks of life. You will hear life stories, have your emotions pushed and pulled upon and during all this feel the loss of a vacancy and income making your thinking pick-up speed. Profit & loss pressures spares no one & people can take advantage of your vulnerability
WORST BAD TENANT SCENARIO
They managed to convince you every which way to accept them and move-in and stop paying. They move others in too. They start letting the property run down and run wild. You are forced to have to legally defend yourself. Courts are back-logged and meanwhile you must pay the mortgage or utilities (if any) during all this. Eventually you get your day in court but....
LANDLORD-TENANT LAW IS COMPLICATED
The judge could find for the other person. Why? How? Its easy to claim uninhabitability, incorrect paperwork, harassment and the surprise of surprises the tenant declares bankruptcy at the last minute taking it out of civil court into a superior court setting. This can go on for months and has many side games to it as well.
NOTE: While there is no set rule, law or regulation, the tenant is favored for protection more often than not in the courts. All that means is the landlord is held to high standards of conduct and procedures plus scrutiny. In the courts many Judges are known to either be pro-tenant or pro-landlord.
IF and WHEN...
When you finally get the property back, it is a shambles & you are out thousands of dollars. Now you have to spend thousands to get it back in shape to rent again. If your investment was minimal & equity was scarce, you made a decision to let the bank have it at the expense of your credit rating. However, some banks pursue you for losses depending on the paperwork you signed for the loan.
HANDLE WITH CARE
Depending on the market, I have seen people just walk -away swearing never to invest in Real Estate again. Just to give this posting some balance, the vast majority of situations work out quite well and it can be the best decision of your life to have invested in Real Estate if done correctly & handled properly
YOU WORK FOR IT...IT WORKS FOR YOU
This subject is not complicated but must be respected and taken seriously. That's why it is so important to get professionals involved. Agents, Brokers, CPA's, Attorneys, repair-people, inspectors and all the rest can help to maintain and protect the largest investment of ones life-time and make it work!
REAL ESTATE SURPRISES
Spending money to make money is the rule and knowing when to and not to unfortunately requires experience, savvy, full focus and attention. Remember that a mistake in Real Estate can let you off hard or easy. The thing is, we never know this for sure before hand. Problems tend to surprise & shock
People with or without lots of money invest income properties. Celebrities have long figured out it is a great place to park funds, write-off losses & expenses and after a long-term journey during of which markets shift, supply & demand kicks in and economies come & go you find you own some nice stuff
Next time you visit a large retail center, warehouse, strip mall, large apartment complex etc. realize that someone (s) owns these and don't be surprised if they are owned free and clear too. Think of the revenue streams generated? Even if you own a small rental home, at some point it churns out good money making you a lord of the land (landlord)