It occurred to me that I while I occasionally write about our real estate holdings, I didn’t have one article that I felt summarized everything. It’s time for that to change.
The title is a little bit of an inside joke. I have a friend who refers our properties as our real estate empire. Compared to most people, I suppose it is accurate, but I can’t think of too many people who built accidental empires.
And if we were to put a label on our “empire”, “accidental” is the first thing that comes to mind. My wife bought a condo in early 2003 before she met me. I bought a condo in 2004, just 4 months into our relationship. We moved to San Francisco due to a great military position she got (and it wasn’t bad for this software engineer either). Oh and we got married in there too (hence why I refer to her as my wife.)
The market dropped. We were left with a choice: sell our properties at a loss or rent them out until there was a recovery. We chose the later. There are people who invest in real estate to make money, and then there’s us. We lose a little money each month on my wife’s property and a bit more on my property. Some empire, right?
I’m a glutton for punishment, so a couple years ago, we bought a vacation/retirement home in Rhode Island. The idea was to capitalize on the low interest rates for mortgages as well as the significant drop-off in the housing market. The combination of the two lead to what I believe is the best buying opportunity since a couple of stock market crashes (2009 comes to mind). We ended up renting the place as the income was just too good to pass up.
In the end, none of the properties are what a real estate investor looks for: a cash-flow positive property. On the bright-side, there are a few advantages to “losing money”… they vary in terms of value:
- A Tax Write-Off – As the famous quote goes, “I’d rather be paying high taxes… it means I made a lot of money.” It works both ways, if you are going to lose money, might as well get a tax break, right? It’s making the most of a bad situation.
- A Tenant Pays Your Principal – While I lose a little money each month, in a little less than 15 years, I’ll have an income-earning asset.
- Forced Savings – Personal finance experts love to say, “Pay yourself first.” Well, I pay the bank first, but this obligation really becomes my savings (see point above about the income-earning asset).
All this has me thinking about expanding the “empire.” If there’s been a time in the last 15-20 years to invest in real estate, I’d say this is it. The housing market is starting to rebound, but when I check the current mortgage rates available in the area that I’m looking to invest, it is hard to resist. However, that’s an article for another day, maybe next week.