Take a moment and think back to that first real job. Maybe it was after high school or college—your first foray into the world of professionals. You probably wanted to look the part, but maybe money wouldn’t allow. So you went to a low end department store or a thrift store and found a suit jacket that didn’t exactly match the shade of black of your skirt or pants. The jacket didn’t fit the length of your arms or hit your waist in the right place, but it made you feel powerful and grownup so you bought it anyway.
Maybe you look back on these early experiences and laugh—had you been able to invest in a quality suit, perhaps you would have. Now, you’ve got a closet full of quality items because you know that quality matters. You know that spending money on a wardrobe will pay off personally and professionally and so you’re willing to invest.
Apply the same care and concern to your real estate investments. Sure, you’ll see properties available in bad neighborhoods for ridiculously low prices. But these low end properties are like ill-fitting suit jackets—they’ll satisfy a temporary need, but your money (now that you have it) is best spent elsewhere.
Which doesn’t mean that your only option is high end luxury properties—actually, we don’t recommend purchasing them because the numbers don’t really work out in your favor. But don’t shop in the real estate thrift store either—you’re spending less money but you’re increasing the likelihood that you’ll lose money.
The problem with extremely low income properties is that you run the risk of getting tenants who might not (for whatever reason) pay the rent. Earlier in this series, we discussed the idea that tenants must be held accountable—but it’s got to be worth your time. If you purchase an inexpensive property, rent to a tenant, you may have to get a judgment because they have defaulted. But the property may be so worthless that the amount of damage a tenant can cause is still not high enough to be worth the fees you’ll pay for an attorney, the time you’ll spend, the collection you may or may not get at a later date.
When you choose an income property, make sure it is quality enough to be worth your time and money. Make sure that you’ll attract the kind of tenants you want to rent to. Find a property that is the perfect fit. (photo credit: Jeff Kubina via photopin cc)
The Jason Hartman Team