By Ed Hoffman
My readers and listeners are accustomed to me talking politics – but for the week of Labor Day, let’s talk business instead. Don’t worry, there’s still a political tie-in!
With a stock market correction looming, many Americans are looking for a more stable place to park their investment dollars. As a real estate investor who owns numerous rental properties throughout the Inland Empire, I recommend the rental market. Single family homes are a great rental investment if you avoid the pitfalls of inexperience.
For example, one pitfall that some newbies fall into is looking for investment properties the same way they look for a home to live in. When it comes to buying a house to live in, most people like to find something that is move-in ready. But with investment properties, it’s a different ballgame. I like undervalued houses that are in need of repairs so I can build some equity by fixing them up before advertising them for rent. Remember: It makes no sense to invest in a property that doesn’t generate cash flow.
Some other real estate investment tips to keep in mind:
- If you live in a higher-priced location, you might need to go out of your immediate area to find properties where the numbers make more sense. You want something that you can spend less money on while still generating income from the rent.
- At the same time, the property should still be within a convenient driving distance for you. Trust me on this: Long distance property management is a headache. If you go too far out of your area, you will have to hire a property manager and that means less cash flow for you. Positive cash flow is important for understandable reasons, but there are less obvious interests at play too. Cash flow is offset by depreciation of the property, which is a phantom write off. This makes cash flow from rental payments like tax-free income. (Questions on this? Call me at Wholesale Capital Corporation, 855-640-2020).
- Remember, people who rent houses are people who can’t afford to buy houses; therefore, I always look for starter homes that are 3 bedrooms /1.75 bathrooms or bigger because people want three places to sleep and two places to bathe/use the restroom. There should also be 1,000 to no more than 2,000 square feet in the living area (typically, houses much larger than 2,000 square feet are not rentable). Houses that fit these criteria are easy to rent and will be easy to sell down the road. There are always people in the market for starter homes.
Here’s a question I get frequently: “Aren’t we in for another crash? After all, prices have risen in the last few years after bottoming out.” True, they have; however, the circumstances that caused the dramatic price drop after 2008 are no longer present. All home buyers since the crash have had to qualify for their loans based on income and credit, unlike those who bought during the artificially inflated boom. I hope that clears things up for those of you who are interested in investing, but concerned about the possibility of another crash.
Finally, here’s my political tie-in. If Trump gets elected, prepare for a little turbulence in the stock and bond markets as he sets changes in motion that I believe will get us on the road to full economic recovery. It may not happen fast – and the uncertainty may cause some volatility in the stock and bond markets (which will affect interest rates) – but I believe this will be temporary. It will stabilize quickly after people accept the reality that someone with business experience is now steering the ship.
So, there it is: real estate investment advice with my trademark political twist. I hope you find it useful this Labor Day week!
Ed Hoffman is host of The Main Event on AM590, which airs Saturday 9:30 AM – 10:30 AM and Sunday 4:00 PM – 5:00 PM. Follow him on Twitter @EdHoffman, and like him on Facebook by searching The Main Event 590.