Real Estate: Whats It For? To built monthly Income.. Or What?

One of the things that I have found over the years in working with clients that own real estate is that people love buying real estate, but they constantly make critical mistakes when doing so. The starting point in deciding what to buy and how to buy it should begin with the answer to this question: Why Should I buy and what is it for?

This question that you ask yourself may sound ridiculous, however an important one for your financial future. Timing is so important. What was the famous line in real estate? Location, location, location. Look back at the years 2003 to 2008 at the feeding frenzy. If someone bought in those years they bought at the high part of the market; thus, the foreclosure and short sale phenonumen. The rule of thumb to any investing or any business is TIMING, TIMING, TIMING. So do some soul searching. The time frame, expectations, and, most importantly, whether the property will be used to create income, for appreciation, or for growth and income (both).

Real Estate for Income

When buying real estate for income it is necessary to look at the type of income that you purchase. Single family homes in the Las Vegas area will be a great investment, for income if done correctly. Let me give you an example: A three bedroom home in Las Vegas, Nevada that would sell for 80,000 rents for $1,500 per month. Subtracting out the annual expenses of the debt service (mortgage payment), property taxes, insurance, and a little extra for overhead it would not be uncommon for this property to net $7,200 after expenses. Take that to another level. Invest in 10 homes with that same outcome that would be $72,000 a year. Go a little further, invest in 20 homes would equal $144,000 a year. We have not even discussed the tax advantages. Your CPA would give you that information.

Let’s take a look at commercial property. Multiunit properties, apartments, or commercial properties may be far superior in terms of income than single family homes. In today’s market, you may be able to find a 6 unit property for $500,000. Obviously the figures are larger however so is the return. If done correctly.

Using leverage (OPM or OPC) may also allow for additional income on a property.
End Result: You need to do some planning prior to purchasing a property and find a knowledge real estate agent that has done investing for themselves. You should consider the types of properties, how to fund the property, whether to use leverage, who will manage the property, what improvements it may need, and what annual expenses it might have, among other issues. The list of considerations is long, but the outcome will be well worth the hard work if done correctly.