Do you remember the first home you ever bought? Remember how wonderful you felt when they gave you the keys at the settlement table? You were on top of the world and proud of this achievement! Those are some of the same feelings other individuals, couples, and families have each day across our nation. Buying a home is not a right it is a privilege. So, what is it that the Investors think about that makes them feel the same level of excitement by owning another property? The answer to that question is the Income that property can generate for them over the course of time. They are excited by knowing that they can rent the property out (after a few minor cosmetic changes) and have the rental payment almost cover or completely cover their new mortgage payment. This of course might require special financing or the ability to put down a reasonable amount of money initially out-of-pocket.
Most real estate investors believe in having as many passive income generating properties that they themselves feel they can handle comfortably. For the larger investors - they tend to turn over their portfolio of properties to management companies who are better equipped to handle the "day-to-day" activities that must be addressed as soon as possible. Why do they go that route? Well, they primarily do it for two reasons; 1) by turning over their portfolio to a property management company that frees up THEIR time to look for other deals, 2) all of the headache scenarios of "tenants and toilets" are assigned to this management company thus allowing the landlords to sleep undisturbed each night. Who wants to take a call at 4:05am from a tenant who is screaming at you because the toilet is backed up? Certainly not me!
So, how did some of these big players in the industry reach their level of fame and success? Obviously, they had all of the characteristics I continually mention in my blog posts which primarily consists of having a healthy lifestyle, a positive outlook, self-discipline, courage, and the ability to conquer any perceptions of fear that tends to incapcitate most people from reaching their dreams. These folks are not afraid of failure, they believe they can succeed and will do what ever it takes to make it (well beyond where most folks just give up and concede).
Some of these real estate investors bought their first home and turned right around and rented out a room or two. Maybe a few years went by and their house appreciated in value to the point where they could tap the equity in the home and instead of buying "disposable assets" that just end up in the landfill, they purchased a second home and did the same thing all over again. Rented it out. These brave folks understood that the majority of the money they made would make would be on the day they buy the property and not when they sell it. They buy for the long term! The realize the importance of paying down the mortgage while building equity over a span of time...not overnight.
Now, over the last few years a number of Speculators have jumped onto the real estate market buying up many homes thinking that they can simply repaint and recarpet them and flip them quickly for big bucks. Some were lucky and did become quite wealthy virtually overnight. But, many were disorganized, over-extended their credit, blew their project budget (that's assuming they had the foresight to even create a budget in the first place). And, instead of finding comparable appliances, cabinets, and interior goods that match the other homes in the area...they picked out items that they themselves would appreciate instead of looking at the practicality of such items. These same Speculators had no real knowledge of the business, the hours required to complete the project, or the stress invoked on them by working with difficult contractors.
Then, we get to the issue of a 1031 tax-deferred exchange (or, Starker Exchange). This process would allow the deferrment of the taxes you would have to pay on the gain you received from the sale of the home, provided you "exchanged" that property for a similiar type of investment property. These 1031 exchanges make it possible to roll into another property very easily provided you have a knowledgeable attorney on this matter and are able to find another suitable property that matches what you are looking for. Most often times these same investors would take the proceeds that they made on the sale of house #1 and put that into a more expensive house #2. And this cycle would repeat itself until the investor now had a multi-million dollar property (apartments, retail centers, office complexes, indstrial property and so forth.
Investing for the long-term is the way-to-go, just buy and hold...it is a much smarter option than that of Speculating on market conditions. Speculation is high-risk and is no different really from playing stock options on the stock market...you really have to do your homework and research if you plan on benefitting financially from this type of endeavor.
Just my thoughts...
-Keith
Keith M. Elliott Jr.
Realtor®, e-PRO®, SRES
Commercial Specialist®
Candidate Member of CCIM Institute
RE/MAX Olympic
15100 Washington Street
Haymarket, VA 20169
Office: (703) 754-4341
Cell: 540-272-9012
Fax: (571) 261-5048
Email: kelliott@comcast.net
Blog: http://www.activerain.com/kelliott5264
Website: http://wwwMyRealtorKeith.com