Investing in real estate is a fabulous way to plan for the future. I’m Bob Nelson, Eugene commercial real estate investment broker, with Pacwest Real Estate Investments, and in part one of a six-part series on getting started in real estate investing, we’re going to look at the reasons for investing in real estate.
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As a real estate investment broker with Pacwest Real Estate Investments, I deal primarily with properties that generate long-term rental income. Assuming that you manage and maintain the property well, these properties generate income even though you are not working. When you own investment property, you don’t have to work 24 hours a day, but the property generates a benefit 24 hours a day.
But the real payoff in investment properties happens when you are able to cover the down payment and hold on long enough: then your tenants, through the payment of rent, will pay the property off for you. At that point you will own it free and clear, and that’s a great position to be in: to own real estate free and clear—real estate that generates cash flow for you. As I’ve gotten older, I’ve come to see the beauty of a position like that.
For those of you who are just starting out, don’t plan on much cash flow. Instead, think of your employment as your source of cash flow, and focus on planning for the future with your investment properties. If you can find a position where the property does not run a negative cash flow, then you most likely have financed it in a way to be able to own the property and, again, once you’ve owned it long enough, you’ll own it free and clear. Planning for that eventuality is a great way to think.
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Bob Nelson, Eugene Commercial Real Estate Investment Broker:
After you’ve owned your property (or properties) for three, four, or five years, you’ll likely notice the equity growing. Equity is the denominator in the equation of what kind of a return you’re getting off of this property. So as the denominator gets larger, the equity grows, and your rate of return diminishes. Now you can replenish that by doing several things. We call it harvesting equity and doing a redeployment or a repositioning of the cash. What does that mean in English? It means it’s time to refinance and move forward with vigor by buying another property. Or do a tax deferred exchange.
The Getting Started in Real Estate Investing Series is from the Bob Nelson and Marica Edwards “Real Estate Today ” Eugene, Oregon, radio show, which airs at 5:30 daily on KPNW.