Many people shy away from owning investment real estate. They worry about the hassle and risk.
Tenants can sometimes call at midnight over a clogged sink. Or you might suffer through stretches when the property is empty, and you don’t have a tenant paying rent… while that mortgage still needs to be paid every month.
Floods, typhoons, storms and other natural disasters can do enormous damage to your investment.
But as I’ve said many times in the past, despite all this, I believe owning rental properties is one of the best investments that you can ever make.
And despite what hundreds of authors, property “experts” and publishers would like you to believe, the real secret to successful real estate investing is this: Anyone can do it!
How do I know? Well, as the decades have passed I’ve seen it first-hand. I’ve watched how my fortunes have diverged from others, just because of the decisions I made about real estate.
I’ve also seen how the advice I’ve given other people over the years about real estate has literally changed their lives.
Consider my friend Rob…
The “happy money bell”
I first met Rob whilst travelling with my wife in the deserts of northern Kenya in the mid-1970s.I was under our Volkswagen van I bolted the gearbox back into place. Rob rode up to the rescue in his Peugeot, gave me a hand and invited us to stay at his place in Nairobi. He offered the services of his company’s workshop to make a more permanent repair to our vehicle. Rob worked for a company that made and distributed farm and construction equipment, tractors, ploughs, cranes, lifts, bulldozers and so on. We became good friends.
A few years later, after about 15 years in Africa, Rob quit his job and returned to Auckland, New Zealand. He had no clear plan of what he was going to do. Soon after his arrival back home his brother invited him to come over to a friend’s house. They sat on the expansive deck of an expensive house, overlooking the harbour, enjoying a few cold beers and chatting. His host was clearly enjoying his delightful property.
Rob happened to notice a bell ring somewhere in the house every 15 or 20 minutes throughout the afternoon. He eventually asked his host what this bell ringing was all about.
“Oh, that”, he said, “is my ‘happy money bell’.”
“Huh?” Rob asked.
“Yes, that reminds me that every time I hear it ring another NZ$20 (about US$13) has landed in my bank account.”
“How come?” asked my friend.
“From my portfolio of rental properties,” was the reply.“And what’s more, it keeps ringing when I’m asleep at night, when I’m out fishing, and when I’m on the golf course.”
Rob did some quick mental arithmetic and figured that at that rate, his host was earning about NZ$43,000 each month (about US$27,500). And that was much more then than it is today.
What’s more, this regular income was coming in without working 80-hour weeks. The host enjoyed his fishing and was a handy golfer as well.
Soon after that, Rob embarked on a small business venture buying and renovating residential and commercial properties. Some he would sell, and others he would keep for rental income. He invited me to join in a couple of his projects, and I still own the first property that I bought with him. It is a great little money earner. The annual rental income is now roughly 50 percent of what I paid for the property back then.
I always smile to myself when I remember that story. I have relayed it to many people. And that story has helped guide our own activities over the years to build a rental property portfolio that will keep turning out solid rental income year after year.
Rentals are one of the better investments you can make today
So, yes, owning rental properties is not hassle-free, nor is it entirely risk-free. The properties need to be managed. Bills need to be paid, and renovations undertaken from time to time. Tenants can sometimes be a pain in the neck. There can be periods of no tenants when the property might stand empty for some time. (That risk can be mitigated by ensuring you follow this critical rule.)
But for long periods of time, not a lot needs to be done. You can just sit back and watch the rental income hit your bank account.
And in terms of reward for effort, I think it is right up there among the better investments that you might make. It certainly has proved so for me and my family.
It is also usually a pretty inflation-proof investment. Rentals do tend to grow along with the economy, incomes, and inflation.
Perhaps you should be thinking of ringing your own “happy money bell”.
I can think of several markets where that makes a lot of sense right now. Interest rates are low in most western markets and I believe they will stay below long-term averages for some time to come. In times of stress, rental yields (calculated as the annual rental income divided by purchase price) tend to be on the high side. And as markets improve, yields come down – normally because values go up more than rentals. I like that equation.
That is exactly where many real estate markets are positioned today.
P.S. As I said, I believe investment real estate can be the best investment you ever make. And the real secret to successful real estate investing is that anyone can do it! All you need are five simple strategies – strategies I still use today.
And for the first time ever, I’m offering to teach you all my rules for making massive gains in real estate. You can find the full details right here.
- This is the one thing you can’t get wrong in real estate investing
- Here’s how to tell if property prices are crazy – or not
- Look before you buy! The pitfalls of buying property sight unseen
Article by Stansberry Churchouse