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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 4898  
Subject: Re: Buying first rental property Date: 11/16/2012 3:39 PM
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Hi Evan,

I will have to think about this some more. I am not totally convinced.
Its pretty simple on a net worth effect basis;
a) each dollar sent to your real estate equity (due to voluntary acceleration, or amortization) gives you the benefit to net worth (ignoring liquidity risks) equal to the after-tax rate of mortgage interest,
b) the same dollar, if kept out of the equity, earns a net improvement to net worth equal to its after-tax copounding growth, minus the after-tax cost of mortgage interest (plus liquidity/safety benefits.)

I do not foresee a cash flow issue.
Cash flow problems only become problems when they weren't foreseen.

I am a salaried employee and don't make extra income by working more hours. It isn't a tradeoff.
That's fine... but your liesure time still isn't "free." If you enjoy handling simple maintenance issues (frankly, I do sometimes... in a bizarre way, I sometimes enjoy the uncomplicated sweaty tasks that don't need special tools or skills & make me get physical for a while... as opposed to my cerebral desk-jockey job,) then there's a compensation of liesure hobbiness. On the other hand, there will be tasks that could be done & over with in 30 minutes by the right person with the right tools, experience & supplies, that will take you all day & 4 round trips to Home Depot to resolve. Don't fool yourself into thinking you're "saving money" simply by not stroking a check to a pro handyman.

I think the 50,000 foot critical perspective is that;
Landlording is a business

Treat it that way from the outset, and every step along the way.
You'll have more fun that way.

Luck!
Dave Donhoff
Leverage Planner
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