The following is the first staff post by Greg Johnson. Please join me in welcoming him to the site!
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!