Buying income or investment property is different than buying a home to live in. Home buyers make a lot of personal choices about neighborhoods, floor plans, school districts that sometimes are not as important to investors. The home buyer is still a real estate investor and expects their invested dollar to make a profit. The home will go up in value over the years, while it is providing a roof over your head and give you important tax benefits.
With income property investing you may have a lot of similar benefits, but you are also looking for a return on your dollar invested and the tax benefits are different.
Income properties are supposed to provide both short term and long term benefits based on economical principles. Income properties pay you in two ways. First, you get paid rent, return on your dollar invested. Secondly it appreciates in value like all real estate over time. The entire asset appreciates and your “out of pocket” investment is only the down payment, usually between 20%-30% of the purchase price. This is the leverage aspect of investing at work.
Investing in income property is usually not as emotional as purchasing a home. Location, school districts and amenities are still very important, however, dollars and cents or “numbers” often are the primary concern of the income property investor.
Many feel they have to “steal” a property or find that “special deal” - it does not exist. The secret is to not wait to purchase the investment property. Purchase the property as soon as you are ready and able. Once you have control of the asset you can start to improve it and the investment can start to grow. Waiting can be a costly mistake.
Real estate markets for investing are usually not in balance. Many have heard of “buyers” or “sellers” markets. Markets are either over supplied or under supplied. There may be a brief period of time when they are somewhat equal. Investors know that real estate cycles are often boom or bust. Experienced investors know that you can not exactly predict the top or the bottom of the market. Real Estate investing is a long term, life long endeavor. The savvy investor knows that time usually works in your favor. It’s like the expression the difference between good and bad hair cut is about two weeks. Often even a so-so investment today will result in a fantastic investment over time.
Stop and think about this; a lot of successful people are able to make money in a variety of ways. There are success stories in every industry, but where does the money usually end up? Profits are either used as capital for more business investments or the money is often put into real estate for investments.
A large portion of the nation’s wealth is held in real estate.
Articles are written by Eric Ruxton and Larry Aikins for the San Francisco Examiner. They are owners of Terrace Realty, Inc. and Terrace Associates, Inc. in Redwood City. Terrace has been in business more than 55 years and in addition to being an independent Brokerage Company, also owns and operates rental properties.