“A billion
here and a billion there, and pretty soon you're talking real money.” Everett
Dirksen
I think money is less of an issue than most people
make it out to be. Yes, you definitely
need money to invest; but if you already pay rent or even a mortgage, you can
afford to buy income property. The bank
will lend you most, if not all, the money you need to buy something, as long as
you pay your bills and have good credit. They will even credit a portion of the future rent you will receive as income,
making it possible to buy a more expensive property than if you were buying a
house just to live in.
If you have bad credit
, you need to work on repairing it a soon as
possible. Your credit score
will determine
the kind of loan you get and the interest you pay. There are numerous lenders out there who will
loan you money if you have bad credit, but the interest rate and terms will not
be favorable to you. If you absolutely
have to buy a property, it would be better to find a partner and use their
credit for the purposes of the loan.
Also, keep in mind that your budget determines where
you will live or invest. Most people
want to start at the top; as my father always said, the only people who start
at the top are ditch diggers. You might
not buy your ideal investment property the first time out. I recommend you get your foot in the door -
buy something, and then trade up over time. You’ll be surprised how quickly you will be able to start trading up once
you get started.
The amount of money you have at the start also will
determine the compromises you will have to make. In the example I just used, John was able to
buy something as long as he moved into one of his rental units. But he’s young and has no children or pets,
so the compromise for him and his wife are not so great when you consider his
long-term gain. If you already own a
home and have children, and for example, live in an area for the schools, you
may not have the option to do what John did. If you are truly committed and know exactly what you want, you can do
it. My wife and I live and do most of
our investing in southern California - one of the most expensive real estate
markets in the country - and we have been able to invest continually.
Are you renting
right now? You are in one of the best
positions; you have nothing to lose, and everything to gain. Yet I’m always surprised when talking to
renters that one of the reasons they do not want to buy a house or an
investment property is because they want freedom and don’t want to be tied
down. I have to say, I find this to be a
ridiculous statement; if you currently pay rent to someone else, you are paying
their mortgage and making them rich in the process. This is fine if you like to spread wealth
around to others, but I prefer to increase my own bank account. So buy a duplex
in a good area, live in it, and make a modest
profit on the second unit; or simply use your tenants’ rent to offset your
mortgage. You will not make enough to
quit your job, but you still are way ahead of your friends and family who need
their jobs to make their mortgage payments. Also, consider this: your landlord can raise your rent or kick you out,
and you can’t make even simple improvements to your living space, like painting
and carpeting the way you would like. Someone else has control over one of the most important aspects of your
life - your home.
When I first
started investing, I certainly was not in a position to quit my job and travel
the world on my modest rental income; but I significantly reduced our monthly
outflow of cash that had been going toward our mortgage, I increased rents over
time, I utilized the tax advantages, and my property increased in value over
time. I then used the equity from the
appreciation to purchase more real estate. I like to think of my investment properties as my family’s retirement
fund, because as time goes on and we pay down the mortgages with our rental income,
we will eventually completely replace and exceed our current income.
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