The past decade has seen a enormous increase of landlords and do-it-yourself character managers entering the industry. Looking back, real estate values were in a state of increase, and a lot of people were more than happy to buy a second, third, or numerous similarities for rental purposes. When times were less than desirable, almost none of those same investors ever considered getting into the rental real estate or rental character management field. It seems that those market specific landlords were almost never able to observe any form of assistance from the economic systems of the industry. The rest of this paper will look at how the real estate business is best left to those who take a long term approach.
The most important issue to look at is that of mortgage interest charges. Mortgage interest is an enemy to the likely hood of a character owner seeing a profit in the short term, unfortunately. It is commonly understood that under the most shared mortgage underwriting rules, a thirty year mortgage requires more interest to be paid during the term than the original loan amount. The problem with this system of mortgage financing is that the interest is not charged at a rate that is equal during each payment. During the first few years of a mortgage amortization term, the interest portion of a monthly fee takes up to seventy five percent of the total while actual debt pay down lacks at a minimal 25%. As the term progresses, the rate of interest to debt changes and greater debt reduction takes happens with each monthly payment. As a long term investor, the benefits of this debt reduction are extremely profitable because a greater portion of a monthly payment is made in the senior stages of a term.
Next, lets examine the ability of a landlord to provide a appropriate degree of tenant service. Certainly it does not seem to matter where you live, inexperienced and ill informed landlords are easily found. A short questioning of your family or other social network will show at the minimum one story relating to a landlord not living up to their end of a tenancy contract, or already worse, a landlord fraudulently causing financial harm to a tenant. Often we see that these landlords are new to the market. Being a good character manager requires much tact, practice, and knowledge. In most situations, these skills can take up to ten years to fully comprehend. Short term landlords, who do not have much experience, don’t often know how to navigate the complicate world of tenancy issues and give the rest of us a bad name. A lot of the times, these landlords are unaware that what they are doing or the harm that they are causing can be avoided.
As a short term investor, one is faced with problems that just never seem to go away. The real economic benefits of being in the business are not realized and often the tenants are left to suffer. As a long term investor, one enjoys the complete benefits of mortgage amortization, tenancy management experience, and outlives each market fluctuation that would otherwise cause a heart attack.