Welcome to the magical world of real estate. The
first exposure for most of us is the home in which we live. Perhaps not surprisingly, if a youngster is
raised in a rental unit, this becomes a factor in setting a way of life as an
adult. In short, buying, versus renting,
can be attitudinal. Let me express my
bias from the onset: The goal is home ownership, and the sooner, the
better. This is important, for the
purchase of a first residence is frequently the initial step in wealth
building.
At the very least, the longtime ownership of
a home is often a key element in later life independence. Many a retiree who bought an inexpensive
tract house with a minuscule down payment thirty or more years ago, and
systematically paid off the mortgage, one installment at a time, is today able
to get by with little else than social security. But for a residence, free of debt, this might
not be possible. There is, however, one
element that tends to undermine the outcome.
If over the years there’s serious economic deterioration of the area
where the property is located, full benefit may be lost. Luckily it’s not entirely a crapshoot, but
the factors which go into determining the future desirability of a location is
beyond the scope of this article. In the
near future I’ll address this subject in detail.
After the home purchase, the next logical
real estate investment for many an aspiring entrepreneur is residential rental
property. It’s a business – yes, a business ̶ which offers many pitfalls. The principal of Murphy's Law applies:
Whatever can go wrong will. And there’s much to go wrong. Although this is a discouraging aspect of
owning rental property, in a perverse sort of way it can be an advantage. In any potentially profitable enterprise, the
field is soon crowded with competition.
If not for the regular aggravation and occasional downright misery,
anybody and everybody could handle it with ease. The downside then becomes an upside; if you
plan to enter the field, you must take this attitude.
A final thought: If you develop an interest
in the potential that rental real estate offers, there’s a remarkable book you
must read. It’s William Nickerson’s How I Turned $1,000 into a Million in Real
Estate in my Spare Time (later editions change a Million to Three Million
and thereafter to Five Million). Though long out of print, used copies can
still be found
Al Jacobs, a professional investor for nearly a half-
century, issues a monthly
newsletter in which he
shares his financial
knowledge and experience.
You may view it on http://www.roadwaytoprosperity.com
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