A couple great articles crossed my news feed this week and I thought I’d share.
February 16th on Bigger Pockets there was a great blog post titled 12 Reasons Why Rental Properties Are the Best Investment by Brandon Turner. Brandon goes into a dozen great reasons why he loves owning rentals. He hits on a few of my personal favorites including 1. Using Leverage 4. People always need a place to live and 12. Not being present to make money. His post is all *who rah* and does leave a lot out of the picture though. Owning and managing rental property is a great way to build wealth. It’s also a lot of work. My 401k has yet to call me at 1130pm with a leaky toilet. Many landlords self manage their rentals and make it work. The local RPOA is a great resource to help with that. Another great resource is (clearing my throat) a qualified local property manager – if you need a referral for one let me know 😉
February 23rd on Investopedia I ran into Buying A Second Home to Rent: Dos and Don’ts By David F. Smith which came across more level headed. I liked the section titled “Don’t Forget You’ll be a Landlord” and I was also a fan of his “Real Estate for Investment Worksheet”. It was a simple sheet but provides a great start. Part of the fun of running the numbers on one of these worksheets is knowing what to put in. Many a investor has underestimated “Maintenance, repairs, etc.” Now looking back at David’s sheet, I’m not seeing any reference to vacancy loss. He might have discounted his “Rental Income” to account for vacancy however I’d argue that would make the sheet very unclear for a beginner investor. If you are reading this and are interested in an Excel sheet that we use to calculate the performance of a prospective rental purchase reach out to me at JBrophy@Compass101.com and I’ll be happy to share.
Lastly, February 23rd on Bloomberg I ran into Landlords Are Taking Over the U.S. Housing Market by Patrick Clark. I was particularly intrigued by the statement “Smaller investors see rental properties as an attractive way to save for retirement. To some extent, they’re focusing their resources on cheaper markets, because the profit margins are better at lower price points”. The article goes on to say “In Seattle, where the median home price was $414,000 at the end of last year, the annual share of sales to non-occupiers peaked in 2013, at 23 percent. But in cheaper Dallas, where the median home price was $201,000, the share of homes sold to people who don’t live in them nearly doubled over the last 12 years.” Reading this I couldn’t help but think of our home town of Grand Rapids, Michigan. As a West Michigander I laughed out loud at the phrase “cheaper Dallas”. Compass Realty Service‘s broker Mark Troy was chatting with a group of investors from California who were shocked they could purchase rental property in Grand Rapids that was cash flow positive. Circle back to 12 Reasons Why Rental Properties Are the Best Investment step 11 Multiple Ways to Profit – the California group is in WMi shopping because to buy in their home state they have to forgo 1/4th of the benefits of rental ownership – cash flow. All of this put together makes me realize how great we have it in Grand Rapids.
That’s it for now. If you have any questions or simply want to reach out to discuss the pros and cons on rental ownership in West Michigan, please do so. We’re here and happy to help.