holding properties for long term rentals...

More people became rich in our country by acquiring and holding real estate, than any other investment. Think about it. If you could negotiate a good property and have your tenants ultimately pay off your mortgage you will be rich some day.

 

 

Is it easy? No. I’ve been around this business for 30 years and I’ve seen well intended investors buy the wrong property and or get the wrong financing only to lose it all.. On the other hand, I know reversal investors that bought the right stuff with the right financing and they’ve now retired rich- or they could retire if they wanted to.The reasons most people fail as investors are:They bought the wrong property,They got the wrong financing,They’re under capitalized,they cant manage the property of tenants.In my world, I know what the wrong properties look like because at one time I owned hundreds of them. They are properties in low income areas. Many of these properties can have rent subsidies from social services (welfare) or section 8 tenants. In either case, the county or the federal government pays part of the rent. There lies the problem. You allowed the government to get in your business and you also have tenants that can’t afford to take care of your property. Many investors fall for this type of investment because they are deluded with the idea of cash flow. Well let me tell you: “Cash flow isn’t cash flow when you don’t get paid, have maintenance problems and/or turnover.” Every time a property becomes vacant, it’s an event to fill it with a good paying tenant as fast as possible. This can result in panic for some investors as they still have to pay a mortgage, real estate taxes, the water bill, insurance, as well as utilities while the property is vacant. Additionally, there is advertizing involved, showing the property, and finally the new “lease up” with the new tenant. This is the agonizing part for most landlords and it can lead to burn out.  Many investors of which I’m familiar get the wrong financing in properties. That is, they go to a mortgage broker or lender and obtain conventional financing. This is not bad in and of itself unless the financing has a high interest rate or an adjustable interest rate. The higher your interest rate the higher your monthly payments. Many investors get suckered into an introductory low interest rate that has adjustable features to it. This can spell disaster when the rate goes up and you can’t raise the rent enough to cover the increase in expenses. So whats the right property and the right financing? The right property should be located in an area of growth. That is, an area that is gaining population! Avoid regions of the country that are losing population. Why? Because 10 years down the road your values will go down and it may be difficult to sell your properties. This is exactly what is going on in some areas of the Northeast and Midwest right now. Sure, you can find areas within these regions that are maintaining their population, but your upside for appreciation (growth in value) will be diminished if there is no demand for these properties.The right financing could be somebody else’s loan or self-held financing. Buying a property “subject to the debt,” that is you are taking over someone else’s financing, could be a good bet- if it’s a low interest rate fixed mortgage. Whenever possible (5 out of 10 times) I take over someone else’s financing. This allows me/you to not use your own credit and have financing in place when you acquire a property. The original borrower is still on the hook for the loan and you have no liability whatsoever with this mortgage. Seller held financing is the cleanest way to buy property. Always negotiate for terms that will allow you to make a profit. Make sure you count all the cost of holding a property as follows: mortgage payment to seller, real estate taxes, insurance, management, maintenance, vacancy. Failure to count these costs could collapse your monopoly board and if you can’t pay your bills, you’re out of the game.