Guest post from John Schaub, author of Building Wealth One House at a Time, Updated and Expanded.
There are two arguments for buying sooner. One is today’s low interest rates and the second is the strong rental market. Any decision to buy an investment property should be based on the amount of income it produces. Today, many potential homeowners are renting instead of buying, driving rents higher and providing landlords with great tenants.
I’ve owned many different properties and have learned that houses have higher net income than apartments and many commercial properties. The net income is higher for one simple reason. The tenants stay longer and take better care of the property.
My average house tenant stays five years and this reduces expenses dramatically. Short term tenants are rough on property. When you rent a car for a couple of days do you ever check the oil or clean it before returning it? Short term tenants have the same mind set.
When a tenant stays for five years, you have no vacant days nor do you have to paint or clean for five years. A long term tenant is easier to manage. If you had five one-year tenants instead of one, five-year tenant, you would have to work five times as much.
The argument for waiting is that it is a challenge to find a bargain today. My first investment purchase was in a hot market like today. I paid a retail price, and financed it with a 20 year, 7% loan. For the first few years there was little cash flow, but as rents increased, so did my cash flow. Today the loan is paid off and every year I receive more cash flow than my total original down payment. In addition, the property is worth more than ten times what I paid for it.
Although I paid a retail price near the top of the market, the price was not that important. The important factors were the terms on the loan and that the net rental income that would cover the loan payments.
Prices may come down at some point, but interest rates are at their lowest point ever today. Find a property with potential, and finance it at today’s bargain rates.