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by Willard Michlin
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ted by big profits and greed, you will avoid these kind of deals.
In hindsight, if you think this was not a good risk, you would be correct. At the time it appeared that the condos would be built and sold within 18 months and my partners and I would be $1 million richer. Things are not always as they seem in real estate. Of course if you had a mortgage payment of $2,000 and rent of $2000 including taxes and insurance. You would never have this problem. Or would you?
I know it appears that rents would never go down, but in real estate recessions they do. We never believe that our loan payment will go up but they do also. If you have an adjustable rate loan, maybe with a 6 month teaser rate, you will find your payments going up $150.00 per month every year and it doesn’t take more than a few years before the yearly increase gets expense to support, especially while property values are flat or dropping.
When buying property to hold, these risks must be taken into consideration so that you are not surprised by them but are in fact fully prepared for these eventualities. When people buy at the top of the market they always tell me they are in for the long run. But in fact they usually sell out at the bottom, after being hit real hard by the negative cash flow.
On the other hand, people who buy in bad markets, get increasing rents, decreasing interest rates and appreciating property values guaranteeing the investor success. By the time the market peaks out this investor is making 100% profit on the appreciation, double the rent needed to pay the mortgage and the ability to support the property for another 10 years if the market drops and the investor has not sold. Risk free, at this point, u |
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