Realty411 Magazine Featuring Scott Meyers | Page 19
duplex style rentals since it’s more private and familiar
than a large apartment complex. Therefore, demand may
actually increase in a down market which is a huge win
for rental property owners.
With all that being said, a down market is definitely
not the time to sell your rental properties. It’s a buy and
hold strategy. During a down market, it is always best to
hold these properties unless there is some absolute
reason you must sell. When the market begins to climb
again, then you may want to consider selling to upgrade
to another investment property in a better neighborhood
or better yet, purchase two and double your cash flow.
The best part of investing in rental properties is
investors are wealth building while cash flowing. Very
few investments offer this kind of opportunity. With a
buy and hold strategy, you are receiving the benefit of
monthly cash flow while also building a portfolio of
tangible assets that will always – no matter the market –
have value. “If you have the right plan, with a decent
amount to invest, you can quickly scale up to a very
healthy portfolio. We worked with a dentist who had
$400k to invest and wanted to receive $10,000 a month
in cash flow so he could retire. We built a plan and got
him to his goal in three and a half years. He was able to
retire early. However, not only did he keep receiving the
cash flow each month, now he has tangible assets that he
can sell off if he ever needed to and can pass on to his
children and grandchildren,” Dani Lynn Robison,
CoFounder of Freedom Real Estate Group stated.
Something else to consider is how you are using the
power of inflation to your advantage. Most 401k plans
aren’t able to keep up with inflation. With the small
returns and high managements fees, unless you are able
to invest a lot in those funds, you may not even be able
to keep up with the rate of inflation. However, with
rental property, you are working with inflation to win in
two ways. First, your mortgage payment doesn’t change.
Let’s say when you purchased the property it was a $500
per month payment. If the market tanks, it’s still a $500
payment on a fixed rate loan. If the market is great, same
payment. When the market is doing well, your asset, if
all goes as planned, is increasing in value. You’re
actually earning value on the asset while effectively
reducing the value of the money you’re paying due to
inflation. Second, you will likely be able to increase the
rental amount between 1%5% per year. That’s
additional cash flow and value you will be receiving
yearly.
The key to cash flowing, rental properties is that
even during a down economy, they’re still cash flowing
at the same amount. In some cases, even higher. Let’s
look at it this way. If you were getting an 8% return on
your stock investments, and the market crashes, you’re
likely going to be reduced to 2%4% if you are lucky.
With rental properties, the rent amount stays the same.
Your mortgage stays the same. Your property
management fees, if you have them, stay the same.
Essentially, if you were getting 8% returns on your
property before, you’re still getting that. In a down
economy, rents rarely go down. You may not be able to
get rent increases during that time, but you will at least
have a steady, consistent amount of cash coming in each
month.
Rental properties tend to weather a down market in a
consistent or even appreciating way. Not necessarily
appreciating in value of the asset but appreciating in
terms of cash flow being received. In a bad economy, a
few things are happening. People simply aren’t buying
homes. Credit is tighter. People are scared. The
pocketbook is squeezed. Instead of purchasing,
individuals and small families tend to continue renting
during a recession. In addition, those that may be losing
their homes to a foreclosure turn to singlefamily or
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