Week 21: Grow Income, Tactic 6

What can you do this week?

• Determine if your are financially in a position to do this.

• Explore your local market and learn more about the realities of property ownership and management.

• Discover calculators to help you evaluate opportunities.

To learn more about comprehensive planning or coaching engagements available, checkout my website and schedule a call.

Where does Real Estate “Land”?

• The Rich Dad, Poor Dad quadrant is repositioned below.

• Real estate can provide income in your primary employment, self-employment, investment, and as a business.

• For this week, we are only looking at rental real estate as an investment.

  

Are You Ready for a Rental?

• You want your primary financial “house” in order before looking at a rental.

• Rentals can require a lot of cash outlays at unpredictable times.

• Your financial core/emergency fund should be strong.

• Credit cards, higher interest(+5%) auto loans, school loans, etc. should be paid off.

• You should have a nice, wide margin of safety in your income vs. expenses. Saving at least 20% between your savings and investment goals at least.

• A maintenance reserve for a rental property is about 1% of it’s value per year. $500,000 property, $5,000 per year on hand for maintenance but realize larger cost items like a new AC will come along for much more than $5,000.

  

Why It’s Powerful

• As a means of growing income, rents can rise over time so your potential for rising income from rental real estate make it an attractive supplement or can become your primary means of income.

• Rents can cover some or all of the costs of ownership.

• Monthly mortgage payments made reduce debt each month.

• Property values can increase over time.

• Mortgage interest, property tax, depreciation, maintenance & repairs, etc. can all be potential tax savings for rental real estate owners.

Is It Actually A Good Investment?

• While there are many factors to owning rental real estate that can grow your income and help create wealth over time, it’s not always a slam dunk by any means.

• A basic calculator evaluating key considerations can help you avoid some pitfalls. Not perfect and any assumption is a guess but it’s usually better than gut instinct.

• A duplex recently came on the market in my town. I wanted to live in one half and rent out the other half.

• With some conservative inputs, higher interest rates and appreciation rates made this deal at face value one that did not stand out.

• The real kicker however is that the below did not factor in an estimated $50,000 of repairs and improvements to raise the rental potential on the side to be rented out up to the average rent for the area (a $500 monthly difference in income) to make the below negative cash flow happen.

• Rental real estate has created wealth for millions of Americans. Like any investment, there’s also risk where there is potential return.

  

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