Naresh is yet to be a real estate investor but did attend Jason’s Orlando property tour and has a lot of questions about getting started. In episode #622, Jason Hartman will answer questions that will help both the new and experienced investor.
Will the Federal Reserve rate increase have on real estate investments?
Naresh kicked off podcast episode #622 with a question about the impact the Federal Reserve rate increase will have on real estate investments. Jason answered that it wouldn’t be so difficult to time markets if there weren’t so much outside interference from the government and central banks. Without the outside forces, you really could look at patterns and do a decent job at making predictions. Since these forces interfere with the market, if interest rates go up and it creates less affordability it’s going to dampen price appreciation. At the same time it should put upward pressure on rents as long as there’s not a lot of new supply being created and the population is still increasing, but that’s not the way it works. Jason said timing the market is a fool’s game. His favorite mantra is, “Don’t wait to buy real esate, buy real estate and then wait.”
Predictions aside, wouldn’t you know when you’re in an upward market?
To answer Naresh’s next question, Jason said there are so many factors and that’s why it’s so hard to predict. Even without the government and central bank interference, there’s still the business cycle. You need to look in the rearview mirror, he added. Jason read The Reluctant Investor’s Lament by Donald Weill. Jason’s advise to Naresh: buy in markets that have good rent value ratios. Stay away from expensive markets such as California, southern Florida and the large northeast markets. Don’t invest for appreciation, but rather income.
Tips for beginning real estate investors
Jason said it is possible to invest in real estate on your own as everyone has access to the real estate market. The distinction is that we are area agnostic. “We want you to buy properties and we’ve got a lot of different choices,” he said.
Jason said his employees would match up investors with properties that suit their needs. He suggested that new real estate investors diversify in three different markets and no more than five. If you are just starting out and intend to buy only one property, pick a market and buy there. A few years alter, but in another market, and build a portfolio over time that’s geographically diversified.
Jason pointed out that while anyone is able to invest in real estate on their own, there are many reasons to work with someone experienced in the market. He noted that it’s hard to invest remotely without a specialist. He can help you exert a lot of leverage over the local market specialists. “Everything we sell thorugh our network is a relationship type of arrangement,” he said. “We sign a contract with them, and they are always looking at that carrot that were’ dangling in front ofthem—more business.”
Trusting a real estate specialist
Naresh wanted to know how Jason knew who to trust when he selects a specialist. Now that’s he’s been doing it for 11 years, Jason knows the players. In the days before the Internet, it was much more difficult to know who was reliable and who wasn’t. Networking plays a large part in finding the right specialist, and Jason said searching the Internet for more information about a particular specialist is helpful as well. If someone has a lot of complaints, of course that person won’t be used. When working with someone for the first time, Jason’s team monitors them closely and makes sure his clients are being treated fairly and properly.
What to expect when financing your first purchase
Naresh asked how much he would need upfront to make his first real estate investment. Jason said expect to pay approximately 24 percent. Most banks require 20 percent down and closing costs will be approximately four percent, depending on the locality and type of financing.
Good credit is required to get a good interest rate, and real estate investors should have at least but no more than ten percent cash per property in reserves for property repairs. A person’s job history will also be required to secure a loan.
Buying property with cash
Naresh said he has heard others say it’s best to buy real estate with cash. If someone has one million dollars, should they pay cash for property?
Jason said absolutely not. He used the term debt-bigots to describe his theory that every debt should be rated individually. Debt that must be repaid by you is bad debt, however, debt you can outsource, such as by a tenant, is a great deal.
Jason said to consider the leverage. If appreciation goes up six percent and you put 20 per down, you’ve got a 5:1 ratio. You’re breaking even by paying cash. If you leverage the real estate and put 20 percent down,the leveraged appreciation rate is now five times six percent, so now it’s 30 percent. You are creating wealth much faster than inflation is stealing wealth. You don’t pay your own debt, the tenant pays it for you.
Rents are indexed for inflation as well. Your interst rate payment is fixed for 30 years, but the rents will go up during that time. The demographics are phenomenal, Jason said.
Podcast feeds are divided and education is free
Jason reminded listeners that because of the number of podcasts he has produced, they are now divided. One needs to simply go back and listen to one of the archived shows to get the catalog. The podcasts are free, hence, Jason offers a free education in real estate investing.
The next time Naresh and Jason get together for a podcast, they will be talking about structuring real estate deals for tax purposes as well as property management .
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