There are different strategies for investing in real estate. You can "flip" houses. That's a buy, fix-up and sell. You can buy and hold for income from the lease. Or you can buy and hold for the appreciation which is my strategy.
There are a lot of books about investing in real estate from people that claim to have become extremely wealthy but many of their tactics aren't legal in my state, not available in my region or seem questionably unethical to me and in some cases unbelievable. If you are just a regular person like me and want to use real estate as an investment for your future, you may be interested in my perspective. I don't believe in the "big score." In the story of the turtle and the hare, I'm the turtle.
I own a few single-family homes which I bought for the purpose of holding. Preferably they will cash flow from the beginning but my main interest is that the rent is enough to cover the mortgage with a little left over to cover maintenance and costs incurred as occupancy changes. My theory is that the tenant pays the mortgage, the longer you hold a property the more it appreciates and if you aren't taking income then your tax liability is reduced while your property accrues in value and doesn't really cost you anything other than the buy-in costs.
So the proper way to evaluate how much your investment has grown is not how much more it is worth from the purchase price, but how much it has appreciated from the purchase costs. The downpayment doesn't factor in because that money is in the value of the home as if it were in a savings account. An example would be: if the home was purchased for $100,000 and the closing costs without the downpayment were $5,000 and now the house is worth $125,000 then the $5,000 has grown to $25,000.
Some of the properties I've bought didn't cash flow in the beginning because I purchased with as little down as possible preferring to hold on to my cash. Eventually, they all cash flow and make up for the initial loss.
As I look for properties, I only buy something that I would live in myself - just in case. That doesn't mean that it must be a large or upgraded home. Just something in a safe neighborhood in reasonably good condition with a good floorplan.
In addition, I believe that it's important to keep the property up; making repairs as soon as needed to protect the investment. And as money allows, I update and upgrade because I believe that the nicer the property is, the more I can get in rent and as the rental price increases the better tenant I can get.
Being a landlord isn't for everyone. Sometimes it's stressful. Tenants can cause expensive damage to property and the can burn you on rent but for the most part, I've had good luck.
The first home I bought in 1998, before I became an Austin REALTOR. I purchased it because it was in move-in condition in a safe neighborhood and was the cheapest thing I could find in close proximity to where I lived for easy access.
That house is a 2/2/1 garden home and is now worth twice what I paid for it. Luckily, it cash-flowed from the beginning. It is now available for lease and I'm going to chronicle the processes of make-ready and leasing in following blogs.
Austin, Texas. Robin Scott, BROKER. Certified Residential Specialist, Accredited Buyer's Representative, Seller's Representative Specialist. 512.589.7988.
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