Is investing really a good idea?

Posted: November 15, 2012 in Let's buy a Home... (or sell one...)
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For the past several years I’ve now helped many people buy into their dreams of owning real estate.  There are a lot of people reluctant to buy, however, and I’ve heard a ton of reasons as to why.  Many of the reasons are sound, and I would never dispute anyone’s personal reasons on why they wouldn’t invest in real estate…well, some of the time, anyways!  One thing I want to clear up is the phrase “now is not a good time to buy…”

The question I have to that is why not?  I personally think that it’s always a good time to buy!  Now before anyone gets defensive on me here, let me explain.  It’s all about time.  Not timing, but time itself.  I just read an artical writen by Paul Kondakos who mirrored most of what I have been saying to people, so I’m going to reiterate some of the key thoughts we seem to share.

Mortgage.  It has to be payed, right?  First of all, lets remember, if you’re buying an investment property, then you’re not actually going to be the one paying it…you’ll have a tenant to take care of that.  And the sooner you get started taking those payments from your tenant to pay the mortgage, the sooner it will get paid off.  I know, it’s an obvious statement, but truly most of us don’t think 25 years down the road.  Geez, I have a hard time thinking 7 days down the road most of the time, let alone 25 years!  But the fact is if you’re in your early 30’s and you want to, say, oh I don’t know, retire…well in your mid 50’s you’re going to own a property free and clear of a mortgage.  Imagine you had more than one now.  The biggest decision you’re going to have to make at that point is do you sell them and walk away with a nice big chunk of retirement money, or do you keep them and maintain a steady income to keep yourself in a nice cushy position?  Retirement never looked so good!

Money money money.  Who doesn’t need some?  Yeah, that’s what I thought.  So here is a pretty simple concept…Gross Income – Expenses – Mortgage Payment = Cash Flow.  True, some properties have better cash flow than others, and some don’t seem to have much at all (try to keep that 25 year goal in mind).  In the end though, you’re going to buy a property that creates some form of cash flow (if you don’t, it’s not really an investment, now is it?).  How many times can you do this before you have enough cash flow that you don’t need to work anymore?  Hmmm…..

Appreciation.  Ok, so if you’re planning on buying a property and dumping it in a couple years, maybe this whole plan isn’t for you.  But let’s remember, we have a 25 year plan, right?  I wish I had a crystal ball to let you know which properties and areas were going to appreciate best in value (oh, that would be so nice…), but I don’t.  Nor can I guarantee that a property will gain any increase in value.  History tells us that it will though.  How much will it be?  Well, really, that’s anyones guess, but traditionally property increases in value roughly 1-2% annually…do the math on that and you’ll see a 25-50% increase.  Will it be more?  Maybe.  Will it be less?  Could be.  Is it more than what you payed for the house?  It sure is 😉

Like any investment, you want to educate yourself as much as possible.  That’s where I come in.  Between the advice I can give you as well as brushing up on some necessary knowledge on the Tenant Protection Act, as well as sitting down with your accountant/finance manager, you should be well prepared to dive right into the awesome world of real estate investment!

By the way… if you read all the way to the end, and you like what you’ve read, feel free (in fact, I would greatly encourage and appreciate) to share this with your friends/family.  Many thanks 🙂

~Matt Johnston

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