This entry was posted on 2/10/2006 12:55 PM.
Continuing last Friday’s conversation about local affordable housing programs, this Friday I want to share my perspective on how ethical real estate investing can be, specifically owning rental property.
First, let me share the need. Nashville’s housing market is booming, as I wrote about last week. For many residents this means they cannot presently afford to buy their own homes. Renting is their only housing option. Not all apartments and rental houses are decent places to live, and not all tenant policies are fair. Deferred maintenance hurts tenants and neighborhoods by decreasing property values and contributing to urban blight. Many Nashville residents have to spend over half their incomes on substandard housing. What tenants need are good places to live: where prices are fair, maintenance is regular, and management cares about their needs.
Second, landlords who provide good places to live at fair prices, with regular maintenance, and with respect towards their tenants can realize monthly returns on their investments. Cash flow is what a prospective Buyer must consider before ever making an offer on a property. I am continually updating my cash flow analysis spreadsheet that takes into account maintenance, vacancy, advertising, management (so owners can pay people to manage their property), and many other costs associated with ownership and then subtracts those costs from projected rental income. The profit or cash flow can be analyzed with or without a mortgage and compared with the cost of investing to see what percentage return the Buyer could make on a potential investment. Not every home is priced accurately for investors to be able to make a profit, but with careful looking one can find many properties that would cash flow. If a property cash flows with a mortgage, then it will perform even better once the mortgage is paid off. Paid-for, cash-flowing real estate provides income for a lifetime.
Third, cash flow is not the only return landlords can make on their investments. Real estate often appreciates over time, as it has been doing in Nashville for quite some time. When owners sell rental properties, they can make sizeable profits, besides the cash flow they have made every month for all the years they have owned the properties. Owners also benefit from the security of their investments. When they treat their tenants well and keep their properties maintained, owners not only generate steady incomes over their lifetimes but also have assets that are increasing in value.
Now what is ethical in making money? By itself it isn’t, but you can generate income and invest for your future in an ethical way. You can provide quality, affordable, fair housing for people who might not otherwise be able to find it. When you maintain your buildings you are putting money into the local economy and investing in neighborhoods. You don’t have to question where your money is being invested by a stranger far away: you are making all the decisions. If you don’t think the eviction or screening policies are fair, then you can change them. You also control how fair your labor wages are, what your business purchases do for the environment, what your investment adds to the local community, and how fair your rents are.
2/10/2006 4:16 PM M Da Silva wrote:
loved the article and appreciate the concise information. thank you for continually sharing your reflections on the meaning of what you do/ why you do it. your integrity is inspiring in its limitlessness.
2/14/2006 7:56 AM Ruth wrote:
I really liked this article. I appreciate your perspective on ethics and it makes me wish I had money to invest.
Kate Nelson wrote: Thanks, Ruth, and your home is already a great investment! Once you’re finished with school we can start building your portfolio. For now you’re way ahead!