People often ask me: “What’s the best way to get rich on real estate?”
The overall answer is pretty simple:
- Plan to own every property you buy for a long time.
- Drop the get rich quick schemes. Go for the get rich slowly, over a couple of decades plan — complete with a few clogged toilets, some roof leaks and nebby neighbors, but plenty of time to let inflation increase the value of your asset.
You have to take a long-term view with property, and if you do, the chances of having significant wealth down the road are much higher.
Here are a few tips you might consider.
Strive for long-term ownership
Long-term ownership is the key to earning wealth on real estate. If you own for the long term, you pay down your mortgage, hopefully see some appreciation in value and skip paying the exorbitant buying and selling transaction fees that decrease your net wealth each time.
Buy properties that are assets, not liabilities
A personal residence is an asset if you can comfortably afford the payments, along with all the rest of your bills. If you can’t comfortably afford the payments, it’s a liability. Rental properties are assets, too, if the rents cover all expenses and leave some positive cash flows. They’re liabilities if they are negative cash flows — and many people buy these to their own detriment. So start buying assets!
Carry the proper insurance
We all know that sometimes things go wrong in life, especially with real estate. Fires, floods, tenant issues, dog bites, etc., can cause loses to an owner. If you have the proper type and amount of insurance in place, you will be covered if there is a loss. It’s not too hard to have the right insurance, but talk to your agent and do a review every year.
Skip fixers or communities where the HOA is in bad shape
Rarely do fixer-uppers sell at a big enough discount to compensate for all the work that you need to do to get them in shape. Additionally, you will add value to a property by doing renovations, but probably not as much value as it costs you to make those improvements. Skip the fixers! Also watch out for HOAs in bad financial, operational or legal shape. Higher HOA fees and/or special assessments will be coming your way in these communities.
Go long on your loan, especially with the outrageously low interest rates in the current marketplace. Lock that 3.5 to 4 percent loan, sleep well and look forward to 2042 — when you will actually own your property outright.
All of the above tips can help you reduce your risk and improve your wealth on the largest, most complicated and riskiest thing you will ever do — buy a home. The more you reduce your risk, the higher the chances you’ll earn real estate wealth. Good luck!
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Leonard Baron, MBA, CPA, is a San Diego State University Lecturer, a guest blogger on Zillow.com, the author of several books including “Real Estate Ownership, Investment and Due Diligence 101”, and loves kicking the tires of a good piece of dirt! See more at ProfessorBaron.com.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.