Today we’ll discuss real estate investing. Why do it? Thank you so much for tuning into the Real Estate Today podcast.
I’m Bob Nelson, real estate investment broker with PacWest Real Estate Investments. Marsha is unable to join me today so I’m gonna be dealing with my favorite topic, real estate investments. I deal primarily with properties that generate long term rental income. Why do you own these things? Because they generate income assuming that you’re managing it well and maintaining it. It will continue to generate income even though you are not working. You don’t have to work 24 hours a day, it’s generating a benefit 24 hours a day. In fact, if you get to a certain point, if you can just cover the down payment and hold on long enough, the tenants through the payment of rent, will pay the property off for you. Will own it free and clear, and I can tell you, at a ripe old age, there’s nothing wrong with owning a bunch of free and clear cash flow real estate.
Now for some of you, you say that’s total heresy. Well you gotta understand, I’m old. I’ve gotten to a point where heresy in the form of lots of cash flow is a very desirable thing. For the rest of you who are just starting, don’t figure on much cash flow. If you’re receiving cash flow, simply because you say well it’s an income property, it better be giving me cash flow … no, that’s what your job is for, that’s what your employment is for. If you can find a position where the property does not run a negative cash flow, then you most likely have financed it in a way to be able to own the property, and again, if owned long enough, you’ll own the thing free and clear. Not that you have to own it free and clear but it’s a nice way to think.
What will ultimately happen, you’ll probably bump into me in three, four, five years. You’ll say it’s doing really well for me but gee, the equity is getting really large. Equity is the denominator in the equation of what kind of a return am I getting off of this property. So as the denominator gets larger, the equity grows. Your rate of return diminishes. Now you can replenish that by doing several things. We call it harvesting equity and doing a redeployment or a repositioning of the cash. What’s that mean in English? Refinance and simply move forward with vigor by buying another property. Or simply do a tax deferred exchange.
I’m the tax deferred exchange guru of the area. My website is 1031guru.com I’m Bob Nelson, real estate investment broker with PacWest Real Estate Investments.
Join Bob Nelson and Marcia Edwards Eugene, Oregon, real estate experts daily at 5:30 on KPNW for the “Real Estate Today ” radio show.