In the last few years we have experienced a massive increase in do it yourself investors who have choosen to include rental real estate in their portfolios. As values increase, people seem to be naturally drawn to the market and often buy numerous revenue properties. When the market shifts and times are less appealing to the investor, a lot of these investors hit the road and sell off their investments at rates of return that would otherwise seem obsurd. This article will make an argument in favor of the buy and hold investment model of real estate investing.
First of all, lets examine the issue of customer service provided by a landlord to a tenant. Experienced landlords know that rental real estate is like any other business that required radical customer service and poor service leads to poor profits. Furthermore, it seems that news of a bad landlord spreads like wildfire through social circles and in extremely bad circumstances, through the media. A quick survey of your friends or other social circle will most certainly yield at leas 1 story relating to a landlord not providing their end of a tenancy contract, or fraudulently causing some degree of emotional or financial greif to a tenant. Most of these landlords are very new to the business. Being a professional landlord requires paitence, skill, and competence. In most cases, these skills can take up to 5 years just to learn. Those short term landlords of buy and flippers’, don’t usually have experience, don’t know how to deal with the tricky world of tenancy interaction and give the rest of us experienced landlords a bad name. A lot of the time, new landlords do not even know that what they are doing is either illegal or results in some form of distress for their tenants.
Finally, and most importantly lets examine the issue of mortgage financing. As an investor, a mortgage can be an extremely effective ally in the game of profiting. Unfortunately, in the short term the true benefits of mortgage money are rarely seen. Most of us will agree that, under normal mortgage terms, a 30 year mortgage will cost the borrower more in interest charges than the actual principal loan amount. The banks know this, and also know that few, if any investors will actually live out the entire term of their mortgage. As a result mortgage interest is not created or paid equally, in the first few years of a term the interest portion of the payment is greater than it is in the latter years of the term. If an investor is to sell of a property within a few years, no real debt reduction is encountered. As you can imagine, making mortgage payments that are comprised of 95 interest and a miniscule 5 principal reduction will not yield any significant return on investment for the mortgage holder.
As an investor who buys a rental property and hold on to ownership of if for the long term, one can experience exponential growth of an investment. The real economic benefits of being a landlord or real estate investor take years to see, selling off an asset cuts profitability short.
Author Resource:
Shamon Kureshi is the managing broker at Hope Street Property Management, a Calgary property management company that provides rental homes to thousands of individuals and families in a variety of sectors ranging from starter homes to executive mansions. Visit them at http://www.hopestreet.ca
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