| The fastest growing commodity in the | | | | should be the monthly cost of the loan |
| United States is real estate. In 2005, | | | | plus the monthly cost of maintaining the |
| it increased in value by 12% compared to | | | | property plus the cost of the landlord |
| other goods and services that increased | | | | plus a profit for the owner. |
| by only 4.5%. With such a high return on | | | | Sometimes an investor may choose to buy |
| their investment, many people are | | | | an apartment building or condominium |
| purchasing real estate instead of stocks | | | | complex and rent the individual units |
| and bonds. | | | | out. Here the formula for determining |
| Some investors choose to invest in run | | | | the monthly rent should be the monthly |
| down properties. They buy for a low | | | | cost of the loan divided by the number |
| price and hope to sell for a higher | | | | of units for rent plus the monthly cost |
| price once the necessary improvements to | | | | of maintaining the property plus the |
| the house and yard are made. Many | | | | cost of a landlord plus a profit for the |
| investors choose to do the repairs | | | | owner. If any units are vacant, the |
| themselves, saving on labor costs. | | | | owner must make up the difference in the |
| Others hire contractors to do the work. | | | | loan payment owed that month. This can |
| Either way, it is expected that the cost | | | | be quite expensive if the units remain |
| of repairing the home will increase its | | | | vacant over time or the number of vacant |
| value. The new value is anticipated to | | | | units grows in number. |
| exceed the original cost plus the cost | | | | There are times when the housing market |
| of repairs. If the owner can rapidly | | | | has slid. This is called the bubble |
| sell the property, he/she can recoup | | | | effect. Prices go up until, at last, |
| their investment, make a profit and move | | | | they burst like a bubble and begin to |
| on to another real estate purchase. | | | | decline. This can be a serious problem |
| Other investors purchase properties that | | | | if you have all your money tied up in |
| are vacant and require little repair to | | | | real estate. If you were depending on |
| make them marketable. These houses can | | | | your new property to earn enough equity |
| be resold or rented out. Here the owner | | | | to make you a profit and the value of |
| has made the decision that the | | | | the property fails to increase or |
| investment will be reimbursed over time. | | | | decreases, you may be in financial |
| The monthly rent on the property must | | | | trouble. Make sure in advance that you |
| exceed the owner's monthly payment on | | | | can make your monthly payments. You |
| the loan. In the case of property | | | | should not depend entirely on the equity |
| rentals, the owner assumes | | | | to make your payments. Financial experts |
| responsibility for maintaining the | | | | suggest that, if you don't have to sell |
| property. He/she will act as the | | | | the property and you can make the |
| landlord, collect the monthly rent, make | | | | payments, don't sell. Wait it out and |
| any necessary repairs, and handle the | | | | see if property values rise again. |
| paperwork for obtaining tenants. If the | | | | Financial experts say that an informed |
| owner does not have the time to invest | | | | consumer will know what is happening in |
| in being the landlord, he/she can pay | | | | the market place and be prepared for it. |
| another person or real estate agency to | | | | Instead of borrowing again to meet the |
| act on his/her behalf. This saves the | | | | downturn in real estate, they recommend |
| owner time and aggravation but it costs | | | | that you cut back on your expenses where |
| money to pay the substitute landlord a | | | | you can. Use the extra money to step up |
| salary. This has to be figured into the | | | | payments and reduce the amount of the |
| rental price. Thus the monthly rent | | | | loan. |