This is a guest post by Corey from 20’s Finances. He is quite a skillful writer and is fairly new to the blogging world. Enjoy his post and make sure to drop by his site and have a look around!
Whenever a great investment opportunity comes my way, I first do my research. Then I review my findings again before jumping on board. That is what I did when it came to Real Estate. It was just over a year ago that my dad decided to invest in real estate. He bought his first rental home after prices fell. Many people point out that real estate investments are the most secure investment as they rise with inflation. My dad’s venture into real estate prompted my curiosity. What attracted me to real estate is that as long as your property is being rented, someone else is paying your mortgage. This sounded too good to be true. In order to do some research, I read through two books:
Rental Houses for the Successful Small Investor by Suzanne P. Thomas
The Weekend Millionaire’s Secrets to Investing in Real Estate by Mike Summey and Roger Dawson
After reading just the titles, you can probably tell that the authors of these two books take two different approaches to real estate investing. The keywords “Small Investor” and “Millionaire” help illustrate the different purposes for these investors. Thomas is more interested in securing a retirement income that she can live off of, while Summey and Dawson have their scope on making money (and lots of it). Both are acceptable approaches to Real Estate.
Small and Invested
Suzanne Thomas does a great job at illustrating how the average person can become a landlord. She highlights her personal story in becoming a landlord of multiple rental properties. She prefers single family homes (as do Summey and Dawson) because of the ease of maintenance for the owner – a person who rents a home is expected to do lawn care and provide major appliances. Thomas’ goal is to have enough monthly income from her houses that she can retire on. She believes managing her properties is not that much of a chore and prefers to save money by not hiring a management company for her rentals. She also saves up about 20% for a down payment when purchasing a new property in order to provide for an easy positive cash flow.
Big and Detached
Summey and Dawson are real estate experts. They buy lots of rental properties with the understanding that they will not personally manage them. They buy houses at wholesale prices (from motivated sellers) and as a result, can afford to hire someone to take care of the day-to-day chores. Summey and Dawson provide valuable information on both negotiating skills and creative financing – both of which I will probably employ in the future.
Thus, from what the book suggests, it sounds like regular financing with a 20% down payment is not as common for them. They highlight the thousands of dollars you can save by obtaining financing from the seller. By offering the seller a higher price at a lower annual percentage rate (financed through the seller), you able to accomplish two things: keep your monthly payments down and provide the seller with their asking price, if not higher.
Their plan also illustrates the valuable calculations one must do to ensure that you have a positive cash flow for each property, even at the time of the purchase. They have created a system that allows anyone who can buy a rentable property at a wholesale price to make lots of money.
After reading these two books, I am planning on getting into real estate by following Suzanne’s method more than the other. I find Summey and Dawson’s Millionaire scheme to be enticing, but I think it will be very difficult to buy properties at wholesale prices (at least at the beginning).
However, after getting settled with my first rental (which will probably be a multi-family home because I live in the northeast and these are quite popular), it is not beyond my scope to pursue other rentals based of the millionaire plan. I also plan to try and save money by managing the property myself.
If it becomes too much of a hassle, I will gladly pay the extra 8-10% for someone else to deal with complaints from tenants. As Summey and Dawson point out, it is also much easier to purchase other rentals once you have equity in at least one other property.
It is, however, important to point out that my end goal aligns more with Thomas than Summey and Dawson. I hope to provide a reasonable retirement income through real estate. I don’t intend on having hundreds of properties or accumulating that much wealth.
What is your goal for utilizing real estate as an investment?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.