Warren Buffet, who some consider to the greatest investor of all time, believes that investing in real estate is wise.
When Warren Buffet talks, people listen.
On an interview with Fox News, Warren Buffet stated that if he could load up on a couple hundred thousand single-family homes, he’d do it.
How it works
It is simple.
Your home is high quality real estate. People want to rent and live in nice homes in nice neighborhoods.
You are probably already using one the biggest real estate investing tricks without even knowing it.
If you have a mortgage on your house, you are leveraging your money. That’s because when purchased your home, you didn’t buy with all cash. You borrowed money against the value of the property.
When you wisely borrow against real estate, you can control much more real estate with much less money.
Most people take out a 30-year loan on the property, which is fine but not ideal.
That’s because 30 years is long time to have that loan hanging over your head.
Ideally, that loan would be 15 years. You can still refinance the home on down the line once you have the property leased out, and are comfortable with being a real estate investor.
Fifteen to 30 years sounds like a long time. I get it. But time has a way of ticking by a lot more quickly than you might first expect. It’s been 23 years since I purchased my first investment property.
You’ll be surprised how quickly loans begin to pay off. You just have to think about it as a snowball that’s slowly rolling downhill, and growing bigger and bigger as it accumulates more and more snow. It’s always nice when they pay off more quickly, of course. That’s why say a 15-year loan is preferable.
The tenant pays the rent, and as long as you are buying the right properties, that rent covers all the expenses, which include maintenance, insurance, property taxes, vacancy, management fees, and the mortgage payment. It’s known as positive cash flow when the rent covers all the expenses and the mortgage payment, with a little to spare.
You profit is many ways.
Hopefully, you are receiving a positive cash flow from the property, which again means the rent exceeds the monthly expenses.
There are other benefits to owning rental real estate:
- Debt Reduction: The debt on the property goes down as you pay down the mortgage. If your property has a 15-year loan, the average debt reduction over the term of the loan if you pay it out over the entire 15 years will be the original loan amount divided by 15.
- Appreciation: The value of the property increases with time. You can even force appreciation as you make improvements to the property, increasing its value with things like bathroom and kitchen remodels. It’s said that in years past, the value of Oklahoma City real estate has doubled about every 15 years. Of course, you can guarantee a number such as this, but it’s a reasonable expectation.
- Tax Benefit: You also get some help on your income tax because you can write off expenses and something called depreciation. I won’t get into those here, just know that it does help you out come tax time.
I am a strong believer that rental real estate is the best investment that the average person can use to become financially independent.
But a real estate investment is much different than an investment in something like a mutual fund or individual stock.
Property Management makes the difference
A rental property investment is more like a business than an investment in something like a stock, mutual fund, or something like gold or silver. Here is the difference. The owner of the investment strongly controls how well the investment does based on how they manage the investment.
In the article I referred to earlier, Warren Buffet points this out when he talked about his idea of loading up on single-family homes.
Warren Buffet is much more well know for investing in publicly owned companies, not real estate.
If you invest in an individual company, chances are that you will have little to no say about how that company is run.
Those types of decisions are made by the management that the company has in place.
A mutual fund is a combination of stocks in individual companies that the fund manager thinks are going to outperform the market.
Even the fund manager like Warren Buffet is unlikely to have much effect over what happens in the companies they invest in, although they can.
But it’s different when you own and manage a rental property.
You can decide on specific improvements that will increase the value of a property.
You can decide on how the management of the property happens.
If the property is managed competently, it will produce rent, which will cover the operating costs. And hopefully, it will produce a positive cash flow.
So this is why the management is so critically important.
The ability of a companies’ management team is one of the most important factors that Warren Buffet’s company Birkshire Hathaway uses when it considers whether or not to invest in a specific company. A poorly managed company, may have the best product on the market but still lose money. Or alternatively, that company may be in a very competitive space but may run circles around their competition if their management is superior.
If you don’t have your property management handled, your real estate investments will not be financially successful. It all boils down to just a few simple questions:
Will the property stay occupied, paying enough rent to at least cover the operating expenses and mortgage payment? This implies that the tenants will need to be at least happy enough to stay in the property.
It also implies that when the property goes vacant, it will be quickly filled with another tenant.
Will the maintenance costs stay within a reasonable range? This implies the tenant is not tearing up the property. It implies that when maintenance does occur, it’s affordable.
When you own rental properties, you own a mini-business. Your Oklahoma City property management company is the operations side of this mini-business.
The question is, how effective will your Oklahoma City property management company be?
Will your property management be run like a McDonalds? McDonalds may not produce the best food in the world. But McDonalds does produce a consistent foood product that sells consistently.
An Oklahoma City property management company must develop effective management systems like the systems that McDonalds has for making french fries and hamburgers the same way every time.
So the solution is simple. If you are going to seize this opportunity now, seek out the best Oklahoma City property management company you can find.
Put your property in the hands of the best.
That’s what Warren Buffet would do.
To find out more about how you can get a Oklahoma City property management company that you can trust involved, click here: Awesome Oklahoma City property management.