How to Invest In The Shared Economy Without Sharing Your Profits.
20 years ago, if you’d a told me I can go to a U.S. City for the weekend and rent a homeowners spare bedroom, while the owner snores Yankee Doodle Dandy across the hall from me, I might have told you “You is cray, cray”. But alas, fast forward to 2018 and your day of reckoning has arrived.
It’s true, it’s very common, and it’s not just happening in the Hip cities of New York, Los Angeles, or Miami. It’s in Omaha, it’s in Amarillo, it’s in Poughkeepsie. Not, that these fine cities lack hipster appeal, but you catch my drift.
This phenomenon is part of, what is called, the shared economy, and it’s not just stampeding toward normalcy with millennial’s, but all demographics think it’s rather hip.
And, this shared economy is here to stay, so shun it at your own peril. My suggestion is to embrace it, promote it, and most of all, invest in it!
Got a spare bedroom you’re currently using to house your ‘treadmill-turned-clothes-hanger’? Well, haul that heap of fine Chinese metal to the nearest Goodwill, and turn that room into a “Hip Overlook close to everything” so then, you can start outsourcing your mortgage payments.
Not into having a stranger sleep across the hall?
I got ya, its not for me either. But, the great thing is there are other options, like buying a condo or loft unit in a bustling metropolitan city, and use it as a rental property.
If you go this route, then
Pick a city that draws a constant flow of people. One with a bevy of large conferences and events on a regular basis. Buy a unit in a building close to major attractions that offers amenities such as; a pool, gym, and 24-hour security. Choose a city that’s tax-friendly, landlord friendly, and one that strikes your fancy, so you can stay in your unit, when it’s not rented.
What is Landlord Friendly?
If you’re in the landlording business long enough, you’ll most likely have to evict some loathsome tenant. Since attorney services range in cost from city to city based on local laws and regulations, it’s prudent to find out, before you commit to a 30-year mortgage, what costs are involved in the inevitable removal of a dirtball from your property.
Also, what is the average time involved in removal? Some cities take days, others weeks, then there’s New York, which can take up to three months. Also, what is the effective property tax rate in your chosen city? In New Jersey its 2.28%, in Tennessee its 0.75%, which causes a considerable difference in potential cash-flow.
Not into the ‘Big City’ High Rise?
Then there is always a duplex. Live in one unit, rent the other out, and I’ll bet your tenant pays at least 75% of your mortgage. No Joke! If, I were just starting out after college and had a decent job, this is exactly, what I would be doing. With duplexes, you can still get a conventional loan, as opposed to a commercial loan, which means you can get away with a lower down-payment.
Plus, there’s always a market for the other unit, but be very, very, picky when you choose your neighbor/tenant. The last thing you want is a needy tenant who doesn’t respect your boundaries. Also, choose someone you have nothing personally in common with, because this will remove any temptation to develop a friendship. Being friends with your tenants creates an awkward business relationship.
Prefer a more rural setting?
This is my favorite, due to its multi-dimensional income potential. Supposed you have 5 acres in the country with a rental property on it. The rental property generates cash-flow, but the intrinsic value of that 5 acres cannot be overlooked!
Is the grass valuable to a farmer who wants to cut hay? Is there harvestable timber such as oaks and pine trees on the land? How bout, 3 head of cattle, 10 goats, 5 sheep, or 100 chickens. Or, how bout all of them! If it’s scenic, advertise it to photographers who are interested in using it as a backdrop for their photography business. While these aren’t ‘NO’ maintenance ideas, they are in fact, ‘LOW’ maintenance ideas, and can be exceptionally profitable.
Later, I’ll get into the tax benefits of Land Hustles, but for now, what are your thoughts on these types of Real Estate Investments?
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