Real estate investing has been something that has excited me since I was fresh out of college and trying to make my way in the corporate world. I remember walking the streets of Denver every morning before work, paying close attention to all of the houses for sale or rent in my neighborhood, knowing that someday I wanted to own my own rental properties. Finally, in 2005, with some fresh motivation from Robert Kiyosaki's Rich Dad, Poor Dad book, I purchased my first rental property. Along the way I have learned a ridiculous amount and continue to do so every day. Here are a few lessons that would have greatly accelerated my investment success if I had learned them earlier.
Do you ever feel like it is impossible to get everything done and there just aren't enough hours in the day. We are all leading busy lives, trying to balance multiple priorities and meet looming deadlines. Just thinking about all of the tasks and fitting them in our schedules causes an extreme amount of stress. This results in unsuccessful attempts at multi-tasking our way through varying projects. At the end of the day, we end up with a bunch of half finished projects and no relief from the growing stress. Here are a few tips that will help organize your work, increase your efficiency, and ultimately reduce stress. These are not brand new, untested techniques, but rather tips that have been successfully implemented by top performers for decades.
The primary concept is to spend some time planning your week by grouping and prioritizing tasks, then blocking out chunks of dedicated time for them. An easy way to explain the time blocking technique is to take you through an example. You can modify the technique in ways that will help it work better for you but here is how I use it:
A few tips that will help make this painless and keep you using the time blocking technique:
Congratulations! You saved your pennies and finally purchased your first home, shelling out a $63,000 down payment on your new digs that set you back $315,000 (the 2019 median home price in the US). You're all moved in and ready to start writing those monthly checks for the mortgage payments. With current interest rates hovering around 4%, those checks will be for $1203.00 per month, not including taxes or insurance. The first few checks are pretty painless as the excitement of actually owning your own home still has you smiling, but by month six it finally sets in that you are going to be writing these checks for the next 30 years. At that point, you vow to make your life's mission to get this debt burden off your back and pay that mortgage off early. You start paying every extra dollar that you have toward the mortgage in order to save some of the $180,803 in interest that you would pay if the loan goes the full 30 year term.
Is this a smart decision? Standard financial wisdom states that being out of debt is a great thing and avoiding paying all of that interest sure would be nice. In general, both of these statements are very true but there are a few caveats to consider before getting too crazy with those additional payments toward the mortgage.
Get any group of people together for a discussion on whether it is better to buy or rent your home and you will be sure to have a passionate debate on both sides of the argument. There are a lot of points thrown around as "set in stone" rules that all should abide by, but the truth of the matter, as in most debates" is - it depends. That sounds like a cop-out answer so let's dive in a little deeper and see what it depends on and what factors sway the decision.
How strong are you financially? We'll start here because if you can't pass the financial strength test, there is no reason to dive deeper and torture yourself over the decision to rent or buy. Continue renting as frugally as possible until you can answer Yes to all of these questions:
How long do you expect to live there? Determining how long you expect to stay in your home is one of the most crucial factors. There are significant costs to purchasing and selling real estate including closing costs, loan fees, and realtor fees. You can reasonably estimate 2-5% of the loan amount in closing costs and 6% of the sale price at disposition. In most cases (but not always) you won't recover these costs through appreciation in less than a couple of years unless you are "forcing appreciation" through sweat equity like remodeling the home. Remember that you are most likely going to pay capital gains taxes on any profits unless you live in the home for two of the five years previous to sale. One other caveat is that the housing market is somewhat unpredictable and selling may not be an easy or profitable endeavor if you have to sell quickly. Bottom line: unless you have a specific strategy- it is better to rent if you plan to move within a few years.
What is the growth rate of prices and rents? There are a lot of data sites such as City-data.com that will give you historical growth rates of median home prices and rents but you will have to make some educated guessed on where things are heading. If you expect rents to rise significantly over your time horizon and can lock in a fixed rate mortgage that you are comfortable with, that may be your best bet.
What is important to you? It will take more than a financial analysis to help you decide if you should buy or rent. What is important you? The freedom and flexibility to move that comes from renting, the long term stability and pride of home ownership? Do you enjoy fixing things yourself and maintaining a property as your own or would you rather have someone else be responsible for repairs and maintenance so that you can spend your time (and money) doing other things?
Here are a few myths that I hear a lot but don't believe to be true: