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Build Income and Wealth with Residential Proper ties

The capital markets readily open their vaults for homeowners and prop-
erty investors because lenders face little chance of losing money on long-term
loans backed by property (and, of course, creditworthy borrowers). Only one
in 100 of these types of mortgage loans end in foreclosure. Lenders like the
low-risk nature of property loans.

In this chapter, I show you how to value, finance, and manage one- to
four-unit residential rentals. In Chapter 15 , I explain how even beginning
investors are expanding their horizons with other promising types of proper-
ties and property-related assets and activities.

Volatility: Stocks Underperform Property

During a 5, 10, or even 20-year period, stock prices have fallen in value by
25 percent to 40 percent or more—especially when measured by infl ation-
adjusted dollars—while residential property prices consistently trend
upward without severe price declines along the way. Except for speculative
fever or sharp spikes in local unemployment, housing markets rarely experi-
ence nerve-rattling downdrafts.
The national median price for single-family houses sets a new record
high nearly every year (see Exhibit 14.1 ). Do you know of any other asset that
scores such dependable year-after-year gains? I don’t.

People ( Not Property) Account for Most Investment Losses

Both the capital markets and experience testify to the low-risk nature of prop-
erty investments, but you shouldn’t naively interpret low risk to mean “no
risk worth noticing.” Tens of thousands of homebuyers and property inves-
tors (often speculators) have lost (and will continue to lose) vast sums of
money in real estate.
Why? Because they fail to gain detailed knowledge about the markets
where they are investing (demand and supply). They blindly assume that the
near future will mirror the immediate past. They take on more mortgage
debt (or accept higher interest rates) than they can realistically pay. They
foolishly believe the infomercial gurus who preach “no cash, no credit, no
problem.” They fail to anticipate the maintenance and renovation dollars
that must be invested to sustain and enhance a property’s value. They fail to
thoughtfully address the needs and wants of their tenants. They destructively

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