For most of us, real estate means owning a home. My family has owned the same home for over 20 years. If I divide the gross appreciation by 20, the return, in dollars, has not been enormous.
On the other hand, we’ve raised two happy kids, had lots of love and fun (along with some tears and stress) and customized our house to fit our needs well. We love our house, our town, and we love to have friends and family over to visit. How do you put a price on that?
In my humble opinion, a home is a luxury and, however rewarding, pays dividends over time. Stretching to buy during earning years, is not a bad thing. Stressing to buy is.
There is a lot of money to be made buying and holding investment property. If you can get the property at a good price, put down enough to have positive cash flow, and know something about construction and repair, you can build wealth over time.
One concept to bear in mind is “cheaper by the dozen”. A small multifamily property will return more on investment than a single family home. A larger number of units, all other things being equal, will produce even better results. Leasable commercial property is another option.
The most common way to evaluate income property is capitalization of income. In simple terms, net income (after expenses including projected vacancy) is divided by price to determine the rate of return. You could think of it like interest in a bank account.
Example: Net income: $50,000, price $800,000, return (cap rate) = 6.25%
Typically, the better the location, the less investors are willing to accept as return: lower cap rate. If you have the strength and determination, rougher areas pay a better return, but the require greater management skills.
Obviously, other factors come into play, such as condition and cost of borrowing.
We can help buyers or sellers understand the issues and formulate a plan that fits their personal goals.
In summary: your home is a luxury. If you are seeking profits in real estate, check out income property.
I am a licensed real estate broker, and Realtor in California, Nevada and Utah.
If you need help buying or selling real estate, I will help you or help you find another broker who may be better suited to the particular assignment. Some geographies or specialties require experts in that field. At times we are hired to partner with other brokers. Let’s talk.
I enjoy real estate brokerage. I prefer representing Buyers but will list properties for sale when I can be effective. You may call me anytime for an opinion or any questions. I know that I can’t be all things to all people, so I will only take assignments where I can serve you well.
Two of my agents focus on loans, one exclusively on California real estate.
Almost all of us know many fine real estate agents. Honesty, experience, intelligence, and creativity. That’s all it takes.