Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth. – Robert Kiyosaki – Author of “Rich Dad: Poor Dad”
Real Estate is a proven way to build wealth and the landlord property rental model is one of the simplest and most popular. Here is the basic plan:
- Find a property in a market where rents can produce cashflows greater than expected mortgage payments.
- Buy the property. Investors have options to make full cash offers or leverage their purchase with bank financing.
- Rent the property. You might use an experienced property management company to find and vet renters and manage the property.
Variations on this model by property type might include: 1. Single family homes 2. Duplexes 3. Apartment buildings 4. Bed and Breakfasts 5. Hotels and 6.Commercial offices
But essentially the concept is the same…to create an income generating asset. In other words, the asset generates revenues greater than its expenses and it “hopefully” appreciates in value over time.
In real estate, other factors tend to stack the deck in an investor’s favor:
- Nearly everyone desires a place to live. Food and shelter are two of our most basic needs.
- Low interest rates. Banks are willing to provide loans against collateralized assets at relatively low interest rates.
- Tax Deductible Interest and maintenance expenses;
- Long term Appreciation – since no more land is being being produced, the law of supply and demand generally works in a homeowner’s favor.
A few caveats:
- Ultimately supply and demand is determined by a number of factors beyond one’s control including interest rates, economic cycles, politics, zoning and demographics.
- Traditionally, real estate markets experience economic cycles of boom and bust. Developers (builders) respond to shortages in product, but there is a lag time before inventory hits the market and sometimes saturates it.
- Pockets of supply and demand exist.
In summary, deep or at least moderate insight is still required in sorting through markets. Property management companies and real estate agents are on the pulse of what is going on and can best scout and cherry pick properties and situations. Businesses that have crushed this model include:
Marriott is the largest hotel chain in the world by the number of available rooms. It has 30 brands with 7,642 properties containing 1,423,044 rooms in 131 countries and territories. Of these, 7,642 properties, 2,149 are operated by Marriott, and 5,493 are operated by others pursuant to franchise agreements.
Greystar Real Estate Partners is an international real estate developer and manager based in the United States. As of April 2019, Greystar had $32 billion in gross assets under management, and operated in nine countries in 2022.
Part 2 – Coming Soon – Digital Property Management
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