Also like us, he focuses on his relationship with his tenants. He listed the biggest mistakes that landlords make as inadequate oversight, sloppy bookkeeping, failing to run credit checks, and holding grudges. He spent some time talking about the attitude of a landlord and how important it is to be flexible and remember the humanity. He is always looking at what will happen in 20 or 30 years, not the near term.
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He looks at areas that had similar characteristics 20 years ago and research what growth happened. As an appraiser, he has more insider info than the average investor. He looks at population growth, natural resources, labor supply, tourist attractions, legislative activity, attitudes toward property owners, and environmental restrictions.
He shared www.
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He is about as opposite as you can get to our strategy of buying cheaper houses in low income areas, saying that it is speculative due to risk of civil unrest, interesting and hard to operate. The more popel on public assistance in a neighborhood, the less likely that prices will appreciate.
We bought in an area revitalizing, but he says that is a bad plan because it takes eons to see the results amen! No matter how much money is put toward improving an area, the community cannot improve and values cannot appreciate until the actions and attitudes of those living in the area improve.
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If nothing else, strive for more diversification. Nice summary. I agree - neighborhoods won't change until the actions and attitudes of those living in them improve. Best to work smart and implement best practices first. People's attitudes change when they SEE things getting better.
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Create the illusion - hold the vision - and people will change. Everyone and everything living on Earth wants a better day for their children - this fact helps move the ball forward. I'm ordering duck entrees in a restaurant that sits where I once worked with neighbors to clean up drug paraphernalia. Because of the lock-in nature of mortgage rates, people should actually bemoan a very low rate. But, guess what. They have this thing now called refinancing! Those who bought in the early eighties had the best of both worlds.
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They could buy at a cheap price, then ride the rate train all the way down. Today with record low rates people are having to buy expensive houses and rates have nowhere to go but up. So when Bob and others speak of low interest as a current benefit in Real Estate I find this either disingenuous or ignorant of the facts.
What do you think? I would love a comment. I also think it would be a great article.
Thanks, Frank. Thank you for your comment! I was fascinated by the idea that there may be an inverse relationship between mortgage interest rates and average home prices, so I spent some time researching this. If you have any stats, though, I would love to read it. People could lock in a low house price, then refinance later when rates dropped.
Best of both worlds. The hypothesis makes sense in theory. But history seems to have played out differently — at least, according to the articles above. But this point is worth further consideration and further reading. Still the logic is SO compelling I have trouble not believing it. Paula, Thank you for the detailed post. I tend to disagree with the overall premise of the post.
While you made a very valiant effort at comparing a rental and owner occupied home owners situation, i think there are so many variables that it would take a book to sort out the nuances. Perhaps I missed it, but one item that I think needs addressed is taxes. Taxes are the 1 expense for most working folks. Homeowners in the US get two very good tax benefits from home ownership. Interest deductions and capital gains exceptions on sale. Those count greatly into opportunity costs. As far as i know, residential renters do not get that benefit.
The use of leverage is extremely important as well.
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No other investment allows me to put down 3. Its very easy as a homeowner to tap into that equity for future use. No opportunity lost. I control a fixed debt in an inflationary environment. I think that inflation reduced payment offsets any increase in taxes and insurance. I do appreciate you pointing out the true cost of ownership and how wise it is to do the math. Some areas renting will make sense.
Heck I have year old rental that makes perfect sense as a renter. It works for me because I know how to buy at a deep discount. Not everyone does.
If they paid market value for the property. That does not count capital improvements and ongoing maintenance. In the end, if folks want to control their money and future, they better learn to break out that calculator and start running the numbers, all of the numbers before making a 6 figure financial decision. While I may have disagreed with your post on many aspects, that is a good thing.
A friendly disagreement fosters a much needed discussion on a subject few folks take time to dissect. Many people have objected to the idea that Rachel could rent her home for the same rate that Owen would pay to own it. This shows their ignorance as to how landlords make money. As you point out, one of your investment properties — if purchased at market rate — would cost MORE to own than to rent.
This property is a good investment for you, however, because you purchased the property significantly below market rate, at a deep discount. This is a skill that successful investors like yourself develop through learning and practice. As an investor, I purchase an average of one property per year.