Asset or Liability?

This one is about feeding you. I mentioned the idea of an assest being something that feeds you instead of eating you. Your personal home is not an asset if you evaluate it this way but an investment house can be.

To review, your home costs you money no matter what. Mortgage, taxes, upkeep, utilities, improvements, etc. are all expenses and if you lose your income you could lose your house. That sounds like a liability to me. A rental property on the other hand is an asset if you do it right.

Buy the house for the right price, in a good rental location and hire a property manager to fill it, take the repair calls and collect the rents and you have an asset if the income is more than the outgo.

You have to buy it for the right price (not too hard in this market) and get it into rentable condition. The better the condition, the higher the rent, the better the tenant. Location is critical though. Good schools, easy access and good neighborhood. Renters want to feel safe too. Smaller lots are better than bigger ones most of the time (less work for the tenant) and the goal is cash flow in this case. If you can get $200 to $300 positive cashflow every month you are doing really well.

You will need some reserves that you have in cash to be able to do repairs or to make improvements and you will be able to comfortably hold onto a property even in bad times. You make money by holding onto the real estate, not when you have to sell it because it is not making money for a brief season.

Call me if you want do discuss this some more but that should be enough to get you thinking. I can help you look at the numbers if you are ready.

It’s a Good Life,
Jerry Robertson