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The Bottom Line: Rents Now Cover Mortgage Costs!

Posted on 02. Feb, 2010 by Marc Courtenay in Real Estate

Few investors have noticed that rents are finally covering mortgage payments again in residential real estate.

In many regions for the first time in years, rental income can pay the mortgage on smaller residential properties. We’ve waited a long time for this opportunity.

We have several friends who steadily became “high net worth investors” while creating significant income for their families. How did they do it? They did one thing right multiple times. They bought rental properties over the years whenever the rent exceeded the mortgage payments. They started during times like these.

Then with the help of inflation and leverage their money grew exponentially. Here’s how that works.

If you believe the government is willing to devalue the dollar, then buying a rental property where the rent exceeds the mortgage payment is very sensible.

You see if inflation arrives and the dollar’s purchasing power keeps crashing, that little $100,000 rental property might someday be worth $175,000. It happened in the 1970s and it will happen again.

As the value of the house goes up with inflation you can keep increasing what you charge in rent. And if you buy it with a fixed-rate mortgage, then your cost in dollars will stay the same.

Yes, your mortgage costs are fixed and your rent can go up while the value of the property rises. By buying a rental property with borrowed money (a fixed-rate mortgage), you’re doing what my wealthy friends did… using inflation and leverage to create great wealth.

As Dr. Steve Sjuggerud recently wrote for The Daily Wealth (www.DailyWealth.com) “Your total return on the small amount you put up for this deal could be extraordinary.”

“Your downside risk is simply that you tread water… since your rent covers your costs. (Of course, there are rental property maintenance issues to watch out for, too.) Your upside potential is huge – in both price appreciation and future rent increases.”

The facts are:

• Housing prices have fallen at least by a 30-50%
• Mortgage rates are the lowest in many decades.
• The government is doing all they can to support home prices.
• The government is printing money generously which can cause inflation.

We can take benefit from inflation and leverage. When we see the numbers and how much we can make on our investment, it’s exhilarating.

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Tags: investing, Real Estate