The Two Safest Ways to Invest in Real Estate

Should a Christian build wealth off of people who cannot buy a home?

My wife and I are planning to employ both strategies. We are in the middle of a fixer upper and are looking at foreclosure properties near college campuses for rentals (constant flow of tenants). Overall I think this will be a winning strategy for long term financial success.

But is it a winning strategy for your tenants’ long term financial success?

@minimum wage
Regarding your first comment, I don’t think the article suggests taking advantage of anyone or doing anything unBiblical - do you see something I missed?

[...] Read the rest of this great post here [...]

I don’ think landlords need to take advantage of renters to get ahead. Just the opposite is true. If you treat renters with respect, and help them to meet their needs and goals, they will treat you the same way. One thing that makes life easier for both parties is when a renter stays in a rental property for many years.

When I was a Peace Corps Volunteer in Honduras, I worked with rural schools, teaching science classes, developing gardening projects and helping to build classroom. I found that when I first came into a new community, people were suspicious of me because I was different and they didn’t know me. So, to help me fit in, I was extremely friendly to everyone I met, particularly those who appeared to be most suspicious of me. I’d ask questions about their lives and their family, tell little jokes, and try to get to know them. What has stuck with me after all these years is that when I was friendly with suspicious people, they responded the same way to me.

People who rent houses also have their defeneses up until they get to know me. I use the same technique that I used in the Peace Corps to make them know that I’m their friend. And, I’ve made a lot of good friends over the years.

Not all renters will be good renters, and in those cases you have to deal with them so that they pay the rent on time, take care of the property and don’t disturb the neighbors. But you can still do it in a professsional way. It can be difficult at first, but the more you do it the better at it you get, until finally, dealing with problem tenants is just routine.

I think this strategies is not as easy as many years back. Rental nowadays has been quite hard to cover the load repayments.

But no doubt it’s a great strategies my father use to be a developer in 3 years. He use this strategies to cause himself into the biggest debt in his history and make the most money in his history as well.

He told me “The key is find a good location with great informations source.” He also told me that “If you can find a great location with underpricing houses, you can get a house for free and have cash flow from there monthly.”

Good job on the posting I can see quite a number of people benefit from it!

Alex Liu
SecretsOfUnlimitedWealth.com

I have always shied away from rentals due to some of the potential headaches associated with them. I think it takes a certain temperament to be a landlord, unfortunately I don’t have it.

Best Wishes,
D4L

Folks who can’t afford a home still have to live somewhere. Rent home owners who take their job seriously consider it a service to provide clean, affordable housing along with excellent customer service.

“Building personal wealth” can be interpretted many ways, but working diligently ‘as unto the Lord’ and providing for your own family are all biblical concepts

Great post, Terry~

I used to work with a group of landlords in opposition to excessive local regulation (for example, it became illegal to rent a dwelling to more than two unrelated individuals, regardless of the property’s carrying capacity - this effectively stopped rental conversions), and I got to hear a lot of horror stories - it seems like every landlord who’s managed at least a few properties for a few years has at least one.

So I have at least an imperfect sense of the risks involved. But in my position as a low-income renter living on the margin in a high-turnover market, I found myself facing five rent increases in five years because the high turnover mitigated against the usual market restraints keeping rent increases in check. (If new tenants are moving into the area every year, you don’t need to worry about keeping your old ones.)

Finally I found a buy-and-hold landlord (a retired teacher who had previously lived in the house and was keeping it to leave to her sons with the basis step-up, and was more interested in keeping low-maintenance tenants than in maximizing cash flow (as the other landlords in town were). I stayed there 13 years until illness and loss of income forced long-distance relocation. If I had had to move locally I doubt I would have been able to find anything affordable.

As for having to live somewhere, I find the finances of renting intriguing. Since landlords are in business to make a profit, and since most landlords succeed in making a profit, on average a renter must be carrying the operating costs and perhaps even then some. So I ask, if I’m paying enough to meet the cost, shouldn’t I be able to own rather than rent? For a lifetime renter, the premium they pay for not being able to buy is staggering (in my case, I view it as the difference between being able to enjoy a modest retirement and never being able to retire at all).

I’m not suggesting every renter should be able to afford a conventional single-family home, but couldn’t the market meet low-wage ownership demand? I’ve seen cottages and guest houses used as rentals; I see ownership opportunities there if some enterprising developer were interested.

“Minimum Wage” makes a lot of sense in asking why renters can’t get help to purchase houses. It must be a frustrating situation to want to buy a house and not have the ability to do so. I’ve done some work with Habitat for Humanity which provides houses for people with incomes insufficient to qualify for a normal loan, but I know that they cannot meet the demand for this type of housing. There are also city programs that help low income people get homes. My wife has a friend, an unmarried woman with 2 children who works as a maid, who qualified for one these programs and wound up with a modest house. I wonder, do these programs work, or what type of program would be needed to allow perennial renters who desire houses to be able to buy one?

As you know, state governments float bond issues to raise money which they then use to subsidize low-income homebuyers, e.g. the interest is subsidized to afford the buyer a low rate, or the buyer is provided down payment assistance in the form of a grant or a loan which is typically forgiven if the buyer lives in the home for so many (often five) years.

These state programs are very limited in the number of homebuyers they can assist. I learned only recently that program size restrictions are handed down from Washington. So state and local governments appear limited in what they are allowed to do.

I think governments and developers need to think outside the box to innovate affordable housing solutions. NIMBY and “smart growth” attitudes and policies are major obstacles here. As I say more generally, whenever the interests of the poor are actively opposed by any other interests, the poor almost invariably lose.

In San Jose (and probably elsewhere) rental houses no longer have back yard green space; they have another house or two in the back yard. If zoning regs allowed it, you could put several (4-6) cottages on a standard lot, and they could be affordable to low-income singles as condos - in Portland, onsite parking requirements are relaxed in areas close to transit. (A standard lot usually cannot be split under current zoning rules, but multiple dwellings could be developed as condos; a different zoning change would be needed to split lots.)

[...] The Two Safest Ways to Invest in Real Estate @ ChristianPF [...]

Interesting post!

I would disagree that those two methods are the “safest” however, both involve concentrating your assets into one property which can be risky if you make a mistake (pay too much) or if the situation changes ie interest rates shoot up and the house value goes down.

I would suggest that REITs (Real Estate Investment Trusts) are a safer (and possibly better) way to invest in real estate because they are diversified and you can choose how much you want to invest. With houses you are limited to investing a lot of money unless you have find financial partners.

Mike

I like your live in then rent out strategy.

Keep in mind most mortgage comapny language states you intend to live in the property for a least a year (some companies the language says two years); if you state to the mortgage company that it’s owner occupied them rent the property, that’s what they call loan fraud (it’s a felony in most places). You may want to investigate the mortgage company policy up front, save yourself a headache down the road.

Mike,

I agree that investing in REITs reduces your risk. However, like other stock-type companies you don’t control the investment, instead you relinquish control of your money to a fund manager. Your only decision is when to buy or sell. I prefer to be in control. I want to be the one to decide when to buy, improve and sell my properties. And, I think in the long run, the more you control your investments the more money you stand to make.

Also, when you own the properties, you learn about all aspects of the business and in the process you become more self-sufficient and develop life-coping skills that can help you deal with unexpected turns down the road.

Ernesto,

Good point. You should plan to live in a house at least one year before renting it out.

@Terry
Thanks for staying on top of the comments - and thanks for the post too!! I learned a bit from the post and am learning from the comments as well…

Re: mortgages and owner occupied

Is there any problem if you live in the mortgaged property AND rent out the other bedrooms? I know someone who did this, he was effectively living in the house for free right off the bat, and as rents advanced he came out further and further ahead every month.

Minimum Wage,

I think renting out rooms in your house is a great technique. If renters are added to a house and it is handled in a subtle way (e.g., no additional cars visible from the street), and without any disturbance to the heighborhood, you probably won’t have any trouble. However, there can be neighborhood regulations or city zoning laws that might create roadblocks.

There’s a good book entitled “Creating an Accessory Apartment: for every homeowner who wants to turn extra space into extra income,” by Patrick Hare & Jolene Ostler, that describes how to add an an apartment onto an existing house. It also has some good detail on how to make new renters blend in and not call attention to the changes.

I recently got married. I own a home in FL, and my husband owns a home in GA. After we got married, I moved to GA. The market it too bad in FL, and I have been unable to sell my house. We want to start renting it out. What do I have to do to set my house up as a rental property? I want to be able to claim it as rental property on our taxes, so I want to make sure I take all of the proper steps. Since I didn’t purchase it as “rental property,” is there anything that I have to do, or can I just start renting it? I am in the process of setting up Landlord Insurance (dwelling/liability), but that is all I have done. Any and all suggestions are welcome. Thanks. Dana