Posted by By Paul Branton, Director of Investor Services for Home Rental Services
Have you heard of OUTvestments? Yeah, me neither. BUT… It sure does seem that is where a lot of the focus tends to go when people are investing, especially in real estate. What will I get OUT of this? While that isn’t necessarily a bad question, and certainly reasonable to ask of any investment, it always has to be looked at in the right light and timeframe.
I think the term INvestment came about pretty naturally as it requires putting IN today (and tomorrow) with the goal of producing a greater amount in the future. While the future could mean next year, or in fifteen to thirty years, real estate investments, even if producing income, will also require a good bit of reinvestment each year.
In fact, most industry experts agree that on average, a house will require about 1-2% of its value in maintenance on an annual basis. So that means that if you’ve got a $350k property, you should plan on about $3,500-$7,000/year in upkeep.
Hope is not a plan
When I think about someone buying an investment property and then hoping they won’t have to put money into it after the initial investment, I cringe. It’s like the guy who doesn’t exercise but still expects to stay in good shape.
Buying an investment property, and planning to not work on it regularly and consistently, is not a realistic plan. (It would be amazing if I could simply go to the gym today, lift a few weights and suddenly be in great shape. We all know it’s a process that takes time and commitment before you get the results.) The same idea applies with real estate investing. You can’t just replace the carpet and expect to keep up with the competition who not only replaced the flooring, but also renovated the kitchen and bathrooms.
YOGOWYPI
This all reminds me of the YOGOWYPI phrase that I was introduced to in my latter years of high school. If you’re not familiar with YOGOWYPI, it is an acronym that stands for You Only Get Out What You Put In. While YOGOWYPI was originally meant to be more for relationships and culture building, I think it can also be true in many areas of life, even investing.
So before we ask, “what will I get out of this?” Perhaps, we should be asking, “what will I put into this?” If we start with that, I think we’ll have a better chance of realizing the best OUTput from the INvestment.
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