If you are thinking about purchasing a rental property make sure you are not making your decisions based on common, incorrect assumptions. With rising prices and historically low interest rates the real estate investor is back in full swing. However, buying a rental property and counting on it to pay for your retirement or provide you easy monthly passive income may not be a smart move.
Home vs. Investment
Arguably the most pervasive myth when it comes to investing in real estate is the belief that buying a home is a great investment. To be clear, buying multiple rental properties and relying on rental income from those properties can actually be a good investment. However, purchasing your primary home and relying on it to fuel your retirement is rarely ever a good idea. Your house isn’t an investment, ATM or piggy bank. It is a place to live in. Do not forget that. Continue reading →
Modern commercial leases can be dozens of pages long and contain a vast number of provisions spread over many paragraphs. Some of these provisions, such as those relating to the amount of rent and operations of the premises, are looked at and negotiated quite thoroughly by the parties. Most of the other provisions however are routinely ignored as dense legalese and the parties, especially the tenant, pay little attention to what they say.
One often overlooked provision relates to the acceleration of rent upon default in payment by the tenant. While language can vary according to the specifics of a lease, the general function of an acceleration provision is to allow the landlord to make a claim for the entire rent due under the remaining life of a lease if the tenant defaults during the middle of lease term rather than having to wait for rent as it comes due before making a claim for it. For example, if a tenant defaults after one year of a five-year lease where the rent was $1,000 a month, the landlord can demand $48,000 (the amount to be paid under the remaining term of the lease) immediately without having to demand an additional $1,000 every month for the remainder of the lease term. While the accelerated rent is usually reduced to its present value, it can still be a hefty sum. Continue reading →
The dream of home ownership is as American as hot dogs, baseball and apple pie. At least that was the theory until the great recession that ruined home ownership for millions. With the economy mostly recovered, mortgage interest rates at all-time lows and rents rising, is it now better, once again, to own or rent?
Homeownership levels continue to fall with the level of ownership hitting a 50-year low last quarter. Currently only 62.9% of households are owner-occupied. Ownership levels are highest for seniors, and at an all-time low for millennials at 34.1%. We can attribute this trend to several factors:
Longevity: Determining whether to rent or own is dependent on several important factors. First, how long do you plan to stay in your next home has to be determined, because one of the best benefits of home ownership is tied to longevity of ownership. One key factor tied to longevity is how mortgage loans are front loaded with mostly interest. Fixed Rate Mortgages are amortized to provide a fixed monthly payment over the life of the loan. Initially the payments are mostly interest, with only a small amount going to principal. A typical $250,000 house with a $200,000 loan will only have principal reduced by $19,000 if sold within the first five years. It takes nearly 20 years to reach a 50% reduction in the loan balance. Continue reading →