Читать книгу Property Management Kit For Dummies - Robert S. Griswold - Страница 37

I often serve as an expert witness in real estate litigation matters and recently had a case that illustrated the challenges of the buy-and-flip strategy for a home featured on one of those cable programs on your favorite real estate home improvement channel. The stars of this show are a young couple; she is the designer, and he is the contractor. One day, while scouting a popular high-demand area of Henderson, Nevada, they located a vacant home with weeds 3 feet high, a leaking pool, dated appliances and countertops, drafty windows, a bootleg garage-to-bedroom conversion, and so on. They purchased the property for $199,000.

The show highlighted the demolition of pretty much everything in the interior of the home, down to the studs. Then a time-motion video showed the process of renovating the kitchen with new counters and appliances, decorative painting and tiling, and pool replastering, making the property the best home on the block. The beautifully completed home was sold to an older couple from out of state for $295,000. Thus, with renovation costs of $24,000, and closing costs of $11,800, the couple claimed that they made a net profit of $60,200 in four months.

That was great until the buyers sued them, alleging that the workmanship of the renovation was deficient and that the property had construction defects that would cost $150,000 to correct. The case ultimately settled, but no follow-up episode of the program acknowledged that the $60,200 “profit” was really a loss of more than $100,000! So, don’t think that those impressive home improvements, “Buy low/sell high” “reality shows” are always the true “reality”!

Although they can be very entertaining and give you some great upgrade ideas for your existing rental properties, these shows are not realistic; they always seem to understate the true costs of acquiring, holding, upgrading, and reselling property. The flippers seem to have significant available cash, which they tie up for four to nine months at zero cost, never placing a value on their sweat equity or time, and ignoring the real costs of commissions and operating costs such as property taxes, association dues, or utilities during the hold period. Finally, when was the last time one of these shows featured a flip that was actually a flop? That outcome is likely at least a third of the time for even the savviest flippers.

In today’s world, more and more demands are placed on your time, so many aspects of rental property ownership are appealing. People want to supplement their current retirement plans (which are predominantly invested in cyclical stocks, bonds, and mutual funds) with additional sources of cash flow, and real estate has a proven track record as one of the greatest wealth-builders of all time. Most folks find that generating a stable income without having to punch a time clock and not being limited to earning an income only for time spent working for someone else is an attractive option. Even most professionals, such as lawyers and accountants, find their income to be constrained by their billable hours. Usually, the more hours they work, the more money they make. But they are limited in the actual number of hours they can work, which limits their income potential, so having ways to generate income outside their main job is beneficial.

Real estate is a key element of your long-term investment category that can allow you to accumulate more wealth in your lifetime than you can from only one source of income. Real estate investments provide additional cash flow and significant asset value over time. So what are you waiting for? The time to begin your real estate ownership and management career is now. The sooner you start, the sooner you can achieve your personal and financial goals. The key is to make money while retaining control of your life. Real estate offers one of the best opportunities to develop a steady stream of residual income that you earn whether you’re sleeping, engaging in your favorite leisure activity, vacationing, or enjoying your retirement.