Become An Investor, Don’t Take On A Second Job
Posted on June 15, 2007
I never speak to an audience about investing in real estate without maintenance problems and dealing with tenants being a big part of the discussion. I get bombarded with questions about how to screen tenants, advertise and show properties, collections, evictions, tenant damage, repairs, vacancies and more. My audiences are shocked when I tell them I don’t do any of those things. I’m an investor; I don’t want or need a second job.
One of the biggest fallacies about real estate investing is that it’s not worth the headaches that come with it. I couldn’t agree more if I tried to do all the things my professional property managers do. The CEO of General Motors doesn’t repair his own vehicle; corporate shareholders don’t sweep the floors of companies in which they invest, so why should real estate investors feel they have to unclog toilets, chase deadbeat tenants or do any of the other things they can hire done.
The problems with investing in real estate arise because most people don’t think like investors. They can get the asking price of properties as easy as one can find out the sticker price of a new car, but who pays MSRP for a vehicle. Unlike vehicles, there’s no black book that gives the wholesale price of real estate. Sure, you can get an appraisal, but that’s just the estimated price a willing buyer would pay and a willing seller would accept given adequate time to market the property. An appraisal has no more to do with the investment value of a property than sticker prices have to do with the value of automobiles.
I’ve seen properties that were great investments at appraised value and I’ve seen others that wouldn’t be good buys at half the appraised value. I think this phenomenon is what causes many people to shy away from investing in real estate. There’s no source they can turn to, to find out what constitutes a good buy. Investors have to do their own homework. Since real estate is a long term appreciating asset, price is only part of the equation; terms also have to be considered. A property priced at $120,000 may not be a good investment if you have to borrow the money at market rates, but it may be a steal at that price if the seller is willing to finance the purchase and let you pay it at $500 per month for 240 months.
The reason so many people worry about things like tenant problems, collections, and maintenance is because they try to buy at or near appraised values and borrow most or all of the money at market rates. That never leaves enough excess income to pay taxes, insurance and maintenance and still cover the cost of management. When this happens, they try to save money by managing it themselves and their “investments” become second jobs that are about as pleasant as watching heart bypass surgery–when it’s on their heart. The emotional attachment that comes with managing their own properties often keeps them from making sound decisions. Its horror stories from individuals who have found themselves in this situation that scare people away from investing in real estate.
Here’s a tip! Whether you’re investing in real estate, stocks, bonds or any other type investment, there are two things to keep in mind. First, there’s a big difference between investing and speculating and secondly, it requires knowledge to be consistently successful in any of them. Let’s examine these.
Buying real estate that doesn’t produce income with the anticipation of selling it later for a profit is speculating. Unless you are able to turn it quickly and make a substantial profit, the cost of ownership; taxes, insurance, interest or lost opportunity costs can quickly eat up what seems to be a big profit. A general rule of thumb is that unless the property doubles in value every four years you aren’t going to make a profit. On the other hand, rental property that generates income can easily be analyzed and valued with the proper tools. One of the best tools on the market is the Weekend Millionaire Offer Generator, which can be found on the home page of this website where you can click on its picture to learn all about the Offer Generator.
This brings us to the second point, which is knowledge. Like everything in life, the more you know about it, the less intimidating real estate investing becomes. The first thing you need to know is that building wealth doesn’t happen overnight. Real estate investing is not a get-rich-quick proposition. The key is learning how to buy properties in a way that enables you to have them professionally managed while they are building wealth. The reason I recommend the Offer Generator program is because it prompts you to consider income and expenses, then allows you to adjust variables like price, interest rate, length of loan, payment amount, etc. in order to create purchase offers that will cash flow. When an offer created with the program is accepted, you won’t need to try to manage it yourself.
That’s how you become an investor without taking on a second job.
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