Real Estate Investing or Land Lording

Published by julia | Filed under Buyer / Seller Tips, Market Trends, Miscellaneous, Real Estate, Shout Outs

Investing in real estate is one of the classic wealth creation vehicles that have launched many people from poverty to the peak of wealth. The real estate vehicle is chosen due to its accessibility to most people, as everyone at the very least has rented an apartment or a house, or like many of us, bought a home. So by being first hand homeowners or renters gives unique insight into becoming potential property owners, as investors in real estate.

The model that has driven classic investing in real estate is buying several houses, putting them up for rent and having the mortgages paid off in thirty years. Meanwhile, the values of the houses will have doubled at least with starting rents at twice what they were when one began, without the loan repayments.

This notion may be inspiring. Imagine buying ten properties thirty years ago for eighty thousand dollars each would be worth three hundred and fifty thousand dollars, calculating for a five percent rise in annual appreciation rates. One’s portfolio would be worth roughly three and a half million dollars. On the low end of the rental scale, they would each bring in about one thousand two hundred dollars per unit, adding up to a twelve thousand dollar gross monthly rent income. Following T&I, nine thousand dollars remains with one as net income.

I hope that we can agree that this is a very modest ideal, but the payoff! It is quite the payoff, for those with the capacity to see it through. The main problem with the scenario above is the tough nature of the early years. Cash flow is thin, expenses are elevated and most of the investors that try this out do not last to the end. The money just runs out.

The short-term solution is to change tack from purchasing then holding to quick cash turning houses. Quick turning homes, acquiring them under contract dirt cheap and flipping them onto another investor for five to twenty thousand more should take care of current cash flow requirements while other rental properties are held on to for future growth. This is good … cash, money! That is not the end of it.

Management is the new problem for the short term. If one’s goal is to buy houses and then hold them for the near future, the fact remains that the management will be solely one’s, whether through a management company or doing it physically. This will change one’s occupation from one of investor in real estate to one as proprietor. The truth is as a property owner, dear reader; one will be stuck in a smelly, dirty enterprise. It is surely one; one does not want to be stuck in.

It could be quite worse for one’s life than land lording, by all means, but that was not the intention of getting into real estate. One is looking to be an investor in real estate to earn the big payoff. The spectacularly huge ones; the big dollars that spell ‘purchasing one’s very own island’, or the ‘house on every continent’ type of big bucks. Net worth in the nine figures.

That kind of net worth is very available to one, in fact, it is waiting on one to claim, but the necessary growth will not be achieved through the purchase of homes for single families. They are quite inefficient as growth vehicles

From the standpoint of investing in real estate, the purposes of single family properties is for experience in home deals and for covering cash needs that are immediate. After all debts have been paid off, one has a year’s worth of banked living expenses along with a kitty of roughly one hundred thousand to two hundred thousand dollars, there ceases to be any use for homes for single families anymore. That is unless one’s goal is being a property owner. Soon as there is strong capital and one is now debt free, move directly to purchasing apartments. There exists quite a bit of advantage to be had by changing the vehicle of wealth from solitary family houses to apartment buildings. -from the standpoint of value buying apartments means dealing with higher dollar amounts, so through the accumulation of years, more is made through higher appreciation.

Apartments contain a substantially higher rental income per square foot in comparison to houses. Therefore, the need of cost effective property management to take the burden of management of one’s hands is important. Apartment buildings make much more sense when looking at them from a business standpoint, so the attraction of partner capital is not difficult, as there is quite a bit of available apartment financing from lenders willing to lend through to eighty percent loan of the value. -Profit centers are quite a number, like filling up vacancies, increasing rents and repairing units that can be tapped into to capture the upside value.

Due to the fact that apartment building do not require personal attention, they can be managed effectively through property managers therefore releasing one to buy in any property market, not just one’s own.

Through the gained awareness of market cycles through closely tracking them, one is able to purchase a property in any part of the country’s markets at the bottom cycle, riding the appreciation to the peak of the market where one can exchange out or sell, taking with one big profits.

Of course, provided one resides within a market, such as California, which tends to rapidly appreciate on the up side of a cycle, this can be achieved too with single-family dwellings. But asked the question, which would one rather appreciating fifteen percent per annum, a three hundred thousand dollar home or a ten million dollar apartment building.

Following ten years a house valued at three hundred thousand dollars will roll into $1.33m. It is nothing to scoff at. In the same ten years in a similar market, a ten million dollar apartment building will roll into $44.4m. Which is the more attractive proposition? It is a simple enough choice, one that simply needs to be made.