Welcome to the magical world of real estate. The first exposure for most of us is the home in which we live. Perhaps not surprisingly, if a youngster is raised in a rental unit, this becomes a factor in setting a way of life as an adult. In short, buying, versus renting, can be attitudinal. Let me express my bias from the onset: The goal is home ownership, and the sooner, the better. This is important, for the purchase of a first residence is frequently the initial step in wealth building.
At the very least, the longtime ownership of a home is often a key element in later life independence. Many a retiree who bought an inexpensive tract house with a minuscule down payment thirty or more years ago, and systematically paid off the mortgage, one installment at a time, is today able to get by with little else than social security. But for a residence, free of debt, this might not be possible. There is, however, one element that tends to undermine the outcome. If over the years there’s serious economic deterioration of the area where the property is located, full benefit may be lost. Luckily it’s not entirely a crapshoot, but the factors which go into determining the future desirability of a location is beyond the scope of this article. In the near future I’ll address this subject in detail.
After the home purchase, the next logical real estate investment for many an aspiring entrepreneur is residential rental property. It’s a business – yes, a business ̶ which offers many pitfalls. The principal of Murphy’s Law applies: Whatever can go wrong will. And there’s much to go wrong. Although this is a discouraging aspect of owning rental property, in a perverse sort of way it can be an advantage. In any potentially profitable enterprise, the field is soon crowded with competition. If not for the regular aggravation and occasional downright misery, anybody and everybody could handle it with ease. The downside then becomes an upside; if you plan to enter the field, you must take this attitude.
A final thought: If you develop an interest in the potential that rental real estate offers, there’s a remarkable book you must read. It’s William Nickerson’s How I Turned $1,000 into a Million in Real Estate in my Spare Time (later editions change a Million to Three Million and thereafter to Five Million). Though long out of print, used copies can still be found
Al Jacobs, a professional investor for nearly a half-
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