Nobody has noticed... but an incredible thing has happened: Rents are finally covering mortgage payments again in residential real estate.
Earlier this week, I gave a speech to Jacksonville's business leaders on where to invest in 2010. After my talk, a local bank president gave me some great insights. The biggest was this... For the first time in years, rental income can pay for your mortgage in smaller residential properties.
It might not sound like much. But it actually led my family to amass much of its net worth...
My family didn't come from money. And my family members didn't have fancy jobs. But they did do one thing right... They bought rental properties over the years when the rent exceeded the mortgage payments.
Then the "miracles" of inflation and leverage made them a whole lot of money. Let me explain...
If you believe the government is willing to destroy the value of the dollar, then buying a rental property where the rent beats the mortgage payment is a no brainer now.
You see, if inflation arrives and the dollar's purchasing power keeps crashing, that little $100,000 rental property might someday cost $200,000 in weakened U.S. dollars.
As the value of the house goes up... as inflation goes up... you can keep increasing what you charge in rent. And if you buy it with a FIXED-RATE mortgage, then your COST in dollars stays the same.
Your cost stays flat. But your rent can go up. And the value of the property can go up. By buying a rental property with borrowed money (a fixed-rate mortgage), you're doing what my family did... using inflation and leverage to your advantage.
Your total return on the small amount you put up for this deal could be extraordinary.
Your downside risk is simply that you tread water... since your rent covers your costs. (Of course, there are maintenance issues with a rental property to watch out for, too.) Your upside potential is huge – in both price appreciation and future rent increases.
The facts are clear:
- Housing prices have fallen by a third nationwide... even farther in many desirable places like my home state of Florida.
- Mortgage rates are the lowest they've been in my lifetime.
- The government is doing everything it can to prop up home prices.
- The government is printing money at a rapid pace... which should lead to inflation.
You are setting yourself up to capitalize on inflation and leverage. When you compare your initial outlay to the money you could make, it's just silly.
The right thing to do is take advantage of all this silliness. Buy a rental property today where the rent more than covers the cost. It's a no brainer...
It worked for my family. It can definitely work for you, too... Between low home prices, low mortgage rates, and likely inflation, now is the best time I've ever seen to do this... Look into it!
This post has been republished from Steve Sjuggerud's blog, Daily Wealth.