The following is the first staff post by Greg Johnson. Please join me in welcoming him to the site!
English: Rental property in Horning on the River Bure (Photo credit: Wikipedia)
When people use the term “investing,” they are usually talking about investing money in the stock market. Whether that is through the purchase of single stocks, mutual funds, or retirement accounts, their idea of investing is often times limited to market products alone.
I think investing in the markets is a great idea. In fact, I have money in several different vehicles – including a 401k and two different IRA’s. However, limiting your investment strategy to include only stocks can cause you to miss out on other great opportunities, including my favorite type of investment – income generating real estate.
Yes, I’ve heard all of the negatives. “Why would you want to be a landlord? Being a landlord is such a hassle. Renters will destroy your property. There are always things to fix. Being a landlord is such a pain.” I’ve heard it all. However, the fact is, the people who usually say these things are people who have never owned a rental property. As somebody who owns two investment properties, I’m here to tell you that you shouldn’t believe everything that you hear. I love being a landlord, and here is why.
1) Renters Create Wealth For YOU
The goal of any investment is to create additional wealth. Deciding to invest in rental property is no different. As with any investment, there is no guarantee that you will make money. However, as long as you can make sure your rentals are occupied, your risk is relatively low.
Ideally, a landlord wants to make money when they buy, own, and then sell the home. Therefore, buying a rental house with cash is optimal. In our case, however, we weren’t able to do that. We used a mortgage. Although we aren’t generating income on them right now, I’ve found that the properties were a great investment because the renters are paying off our mortgage. This is one of the many reasons I almost exclusively recommend buying a house over renting.
Regardless of whether the house increases or decreases in value, 15 years from now, I will own 2 houses that somebody else almost entirely paid for. How is that for a great way to build wealth?!? Being a landlord is some of the easiest money that I have every made.
2) Rental Income is a Great Source of Passive Income
Sure, I have to make the occasional repairs. Yes, dealing with tenants can be a pain. Of course, it hurts when somebody damages your house. However, these events are very rare.
So, while I may have to spend a few hours on a Saturday fixing a leaky faucet, the other 364 days of the year I am making money without having to do a thing. I rarely even think about the fact that I own rental properties until my tenants drop off their rent payments on the first of the month. How much more passive can generating income get?
3) Real Estate is “Real”
Look, I am glad to put money away in the stock market. I know how investing money into other companies or mutual funds can help to increase my net worth. However, the values of all of those accounts are paper values only. The only way I can get at that value is to sell my shares.
“Wait a second, Greg. The only way for you to cash in on the equity of your house is to sell it as well.” While that may be true, the fact that a building is something that I can feel, something I can touch is comforting to me. If the stock market crashes, if the companies I own stock in fold, my shares are only worth the value of the paper they are printed on.
On the other hand, my houses are structures that can be used for people to live in. They are built on plots of land, and I don’t see anybody making more land in the near future. Regardless of what happens to an economy, real estate will always have some intrinsic value.
As you can see, I love my rental houses. Although I didn’t realize it at the time, buying those two investment properties was one of the best decisions I ever made. Not only was I able to buy them for a good price, but I’ve been able to grow my net worth much faster than I ever would have been able to do otherwise. In fact, once they are paid off, the income they generate will probably allow me to retire years early. That isn’t too shabby for an investment that is often overlooked!
I hope to get into the rental market soon. We plan on keeping our current house when we buy our future one, and using it as a rental.
That is exactly what we did with our first house…and it worked out great. For one thing, if you buy a house as a primary residence you’ll get a lower interest rate from the mortgage company. Once you move out and turn it into a rental, you get to keep that same rate!
I always liked rental property! I could understand it, touch it and make money from it. Being a landlord is no more difficult than anything else, if you learn how to be good at it. I owned 44 apartment units and a shopping center at one time. It helped me achieve financial freedom. Rental property is easier to control than the stock market.
Wow! You had a real estate empire!!!
I agree with you, I love that real estate is something that you can touch. Also, it really isn’t difficult to understand. I think being a landlord gets a bad rap because of all the bad tennant stories.
We had to move last year so we put our house for rent and after one year of renting by what we thought were good people, we had to put $5000 worth of repairs into the house. NOT a good first experience. After all the work we did, we now have dream renters in the house and I pray it stays that way. I do like being a landlord now. We have now bought a house in our new location and if we had to move again, we would rent it out without a thought. It is great income as long as you have good renters.
Ugh! That stinks. We had the same thing happen. We learned a lot from that experience, I hope, and it has gotten better. I hope you are able to stick with it and don’t have that problem again.
10 years ago I met for lunch with an 60-70 year old man from our church who had been a successful real estate investor. I wanted to ask his advice on how to get started in rental property. At that meeting, he offered to sell me a house on land contract at a very nice price. I bought it and have had a good experience so far.
At that first meeting (we’ve had many more since) he asked me what I was doing for my retirement. I told him that I was making regular contributions to my retirement accounts. Then he said, “That’s just paper. It might be here today, but it can be gone tomorrow.”
He went on to tell me that he puts as much of his money as he can into real estate for the simple fact that it is real (as you shared in point #3). That was an important lesson that has stuck with me to this day.
I’m glad that you have had such a positive experience! I really think that owning real estate should be an important part of anybody’s investment portfolio. I’m sure that, when you retire, you will be thankful that you took your friend’s advice.
How lucky for you and smart of you to have the advice of a successful real estate investor.
My husband and I are looking into getting a bigger property next year and we are planning to have this home rented out. Yes, getting into investment property may even be better than stocks investment. But as for me, I believe that we should not put all our eggs in one basket. We already have CDs, stocks, and mutual funds. We have also maxed out our retirement savings for this year. So, we would like to get into property rental this time. I hope it will work for us.
Good luck Manette. I can only speak for myself, but real estate has been great to us so far. Just like with stocks, there are risks. However, I think many investors preach “diversification.” Yet, they stop at stocks. To truly diversify, you have to invest in other areas as well.
I experienced renting an apartment before. I am aware of the hassles as well as the challenges our landlord is going through. I always believe that there is a negative side of things and though landlords can generate a lot of profit there is always challenges. To make this the ideal type of investment and to minimize the hassle, one must find a solid proof management system.
Just as with any investment, there can be challenging times. The key is to push through them and think long-term.
And where rental properties REALLY shine as an investment is in times of inflation. More than just about any other investment, you have the ability to adjust your income to match growing expense levels.
PS Congrats on the staff writing!
That is actually something I didn’t mention. You can adjust your income to make as much as needed – provided your market will tolerate it. Although, the renters we have right now are so great, I’m not sure we will ever raise our rates.
Thanks for the support William:)
I have done a lot of research into real estate investing and have been a landlord myself. I have a somewhat jaded opinion towards real estate investing. In my experience as a landlord I have experienced vacancies and multiple issues that need my attention. It seemed like every 2-3 months I was guaranteed to get a phone call for something that needed fixing. I completely understand the benefits of real estate investing and know that it is the quickest way to wealth. However, it is not as easy as some people make it out to be.
It isn’t always easy, that is for sure. I spent about 15 days straight fixing up one of our rentals. Every night after work and all weekend long we had to fix it. However, for the most part, once the unit is rented, the work is done. We rarely think about them except when the rent is due. We get an occasional call for maintainence, but only a few times a year between the two rentals we have.
However, I’d agree that real estate isn’t for everybody. Some people don’t like the stress of having another house hanging over their shoulders.
We’ve talked about getting into the real estate market as landlords in the past and decided to wait until we paid this house off. We essentially can pay the house off now but would need to build up enough money for a decent downpayment on another home. We are always worried that if something goes wrong we are responsible for the mortgage so we want to make sure the mortgage is at a reasonable level in case of any financial emergency. Great post Greg!MR.CBB
That is true. You are responsible for both houses. Taking out a mortgage to buy a rental is definitely a risk, but we thought it was a risk worth taking.
Thanks for your support Mr. CBB!
I was thinking about getting in to this as well, but I am constantly worried about the “what if I can’t find a renter” issue
Honestly, we have never had any trouble at all. We’ve never lacked for applicants when our houses are available. I’m sure much of it would depend on your market, but there will always be renters.
I love being a landlord, but sometimes being a landlord sucks. Especially, when you have to evict someone then prepare the home for a new tenant. However, long term being an landlord is awesome.
I love too being a landlord because we have so many benefits of it but in other face of it we have so many problems also which we have to face. Well you thoughts really remarkable.