Sometimes, it might seem that successful investing involves either psychic gifts or faith – the ability to look toward the future, read trends and make investment decisions based on a belief about potential outcomes. But the real key to reaping rewards from real estate investment is to be both a believer and an agnostic – an “area agnostic,” to be precise.
That’s Jason Hartman’s term for someone who knows that it’s impossible to predict what areas of the country will offer the most promising return on an income property purchase. As we’ve noted in previous posts, just as an agnostic in the spiritual sense takes the position that it’s impossible to know whether God exists, an Area Agnostic™ understands that because of many constantly changing factors, there’s no way to know which markets will yield the best property investments. That’s why Jason recommends launching your real estate investment career by purchasing multiple properties in different markets around the country.
Investors of all kinds know that diversification is the key to a successful portfolio. In real estate terms, that means finding and purchasing properties of various kinds – single family home, duplex, condominium – in different areas to maximize return and minimize risk. This way, if one property turns out to be a poor investment, you have others to take its place and you haven’t placed all your proverbial eggs in a single basket.
Diversifying with multiple properties has other benefits, too. Multiple properties mean a higher and more stable rental income, since that income flows from a larger pool of tenants. If you own just one rental house and it stands vacant after a tenant moves out, or you have a problem tenant who doesn’t pay the rent, you lose money by having to carry the entire mortgage payment yourself. But if you own that single family home plus a duplex in a different market, the likelihood of all units being vacated at the same time are slim – you’ll make some return on your investment.
Investing in multiple markets does mean some additional expenses, though. Purchasing properties out of your area may require you to hire a property manager or management company, or to do a certain amount of traveling to oversee the maintenance and upkeep of the property. But it’s important to remember that all these and other expenditures related to managing your properties are tax deductible.
Although buying more than one property may seem daunting, the current US housing crisis, with its record numbers of foreclosures, property seizures and depressed markets, means that there’s no better time to begin creating a diversified real estate portfolio. Real estate purchase prices remain low, with record numbers of houses placed into auction for a fraction of their original value, so it’s possible to buy multiple properties for a relatively low up-front investment.
Rental income property is the most stable investment option available today, offering an unrivaled, consistent long-term return on a purchase that continues to appreciate over time. Believe in that – but as Jason Hartman points out, when it comes to selecting the properties for your investment, become an Area Agnostic™ as well. (Top image: Flickr | www.thegoodlifefrance.com)
The Jason Hartman Team