Why I invest in real estate ... and you can, too

House and calculator atop $20 bills

When I was a child, my allowance was a paper roll of nickels, then dimes and then quarters, which I earned after I helped remove money from the coin-operated washers and dryers in the apartment building my mother and grandparents owned.

They owned the bit that the bank didn't, anyway.

My mother and her parents invested in real estate, with my grandparents providing the capital and my mother adding her considerable management skills.

Eventually my mother struck off on her own, and their collective smart investments helped send my sister and me to college.

I grew up watching my mother do this, and I figured there was no reason I shouldn't invest in rental property, too.

I started with a condo in New Jersey, which I bought as a place to live when I was 27. When I married at 32, we moved to Minnesota, but I kept the place.

I hired a manager and found tenants. I'm on the third set, and they are excellent.

In seven years, I will retire the mortgage. For now, though, I have a ton of equity built up, and I'm noticing that the real estate market where I live is picking up.

It's time to leverage some of that equity into another property. 

I'm in the first third of serious looking. I've seen a bunch of houses that I wouldn't accept as gifts.

They all have fabulous price tags -- $35,000 for a whole house! -- but visits reveal that the houses are in terrible shape. Some might be perfect for a general contractor who wants something a crew can work on when they have a free afternoon, but these are not the projects for me.

I've seen a few houses that could be possibilities, except that they still need a good bit of work, and even then I can see all the ways renters could wreck them.

So I'm concentrating on condos, where monthly association payments buy outdoor and structural maintenance.

Right now, I'm mostly looking for reasons to say no to the properties I see.

Eventually, I will narrow down the properties that seriously interest me and get my spouse involved.

He's taking the risk with me, so he should at least see what we're buying. I'll send detailed pictures to my mother and sister, talk to a management agent and visit the bank and/or the mortgage broker, who has done excellent work for me in the past.

If everything goes well, I will buy a property, install renters and use the rental income to pay off the mortgage. 

I don't expect this property to generate extra income anytime soon.

This is important to consider if you're thinking about becoming a landlord: Owning rental property is a long-term investment.

Talk to landlords and find out what's involved in terms of work and risk.

Then consider the return on investment before you put in an offer on a property.

Figure out how much you'll pay in total for the property, and then figure the likely rent.

What's your annual ROI? Is it better than a CD?

That's not hard to beat these days, but there's little work involved with owning a certificate of deposit.

In our case, the rent on the New Jersey condominium goes to pay off the mortgage. Sometimes we have to kick in a few thousand dollars a year, depending on how many things need to be fixed or replaced in the property's interior.

I can live with that.

The same will likely be true of a new property. I'm 44 and my husband is 47.

If I buy a property now and fund it with a 20- or 30-year mortgage, the property will generate spendable cash right about the time that we want to work less.

Over the next two or three decades, I hope to essentially create an asset-backed annuity, one that doesn't shrink (ideally) or run out.

We could jog along for quite a while, living on a combination of that income and money from other retirement savings.

We could also sell it, if we want or need to do that, or borrow against it.

Alternatively, we could let our kid inherit the property someday at a stepped-up basis, which is finance-speak for the fact that he could sell it and owe a lot less in capital gains tax than I would if I sold it.

Nothing about this plan depends on the property appreciating. The property likely will appreciate over the next several decades, though, and that could help me do this whole process again.

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