05/2019 KIPLINGER’S PERSONAL FINANCE 25Since the bottom of the housing market in 2012, median home prices nationally have risen
by 53%, according to Clear Capital, a provider of real estate data and analysis. Is it too late
to make money in real estate investing? Not if you find a property selling for a discount and
manage it well. Real estate investors offer some key strategies:Location, location... Look for properties in economically stable neighborhoods where you
can expect long-term price appreciation and a large, consistent pool of prospective tenants.
That’s often at the entry level of the market.Run the numbers. Look for cash flow—rent minus all expenses, including any management
fee and a reserve fund in case of vacancies—of a few hundred dollars a month. Or you might
be content to break even each month and wait for the home to appreciate. Use this Rental
Property Calculator (www.biggerpockets.com/buy-and-hold-calculator) to assess a prop-
erty’s potential.
If you don’t have the skills and time to manage a property, or it’s in another city, you’ll
need to hire a property management company. You can expect to pay a monthly fee of
about 8% to 12% of the rent you receive, plus a separate leasing fee, which varies from
one-half to a full month’s rent.Use other people’s money. Ideally, you’ll put down as little of your own money as you can,
borrow the rest and charge enough rent to pay the loan. You’ll pay more for a mortgage on
an investment property than you would for your own home. The requirements you must
meet to get a mortgage on a rental property vary depending on whether you intend to live
on-site and on who is backing the mortgage (Fannie Mae, Freddie Mac, FHA or VA). If you
have enough equity in your current home, you could take out a home-equity line of credit
against it to buy the property.Learn the business. When Jason Rector started out, he says, he read like crazy about real
estate investing, went to conferences and took a lot of successful people to lunch. Check
out BiggerPockets.com, an online real estate networking and information resource, and con-
sider joining a local real estate investor club or association (search for one on the website of
the National Real Estate Investors Association at http://nationalreia.org).How to Make Money in Real Estate
DO IT YOURSELFbought a three-bedroom, two-bath-
room home for $117,000 with a $4,100
down payment, using savings from
the mowing business he ran while in
high school.
Rector finished the basement him-
self, adding two more bedrooms and
another bathroom, and invited four
friends to rent from him. That paid his
mortgage and expenses while he lived
rent-free. The next summer, he bought
a second house for $135,000. His
younger brothers, who followed him
to college at Eastern Kentucky, lived
in and managed the houses after
Rector returned to his hometown,
Champaign, Ill., in 2008.
Back home, Rector began his career
as a firefighter, but he had caught the
real estate bug, and he kept buying.
Today, Rector, 34, owns and manages
93 rental properties, with an eight-
figure total value. Rector says his wife,
Lisa, 33, is a big key to his success.
She’s a real estate agent with Keller
Williams and a top agent in her mar-
ket. She helps find properties they
can buy for 10% to 20% below marketvalue—mostly apartment houses and
single-family homes near the campus
of the University of Illinois. The homes
may be torn up or dated. Or they could
be foreclosures or short sales. Lisa ne-
gotiates the deals, and Jason improves
the properties.
Jason says that since the down pay-
ment on the first house, he hasn’t put
a cent of his own money into the busi-
ness. When he’s ready to buy, he taps
his line of credit to pay the purchase
price plus the cost of renovation. When
he rents out the property, he takes the■ JASON AND LISA
RECTOR’S EXTENSIVE
REAL ESTATE HOLDINGS
GIVE THEM PLENTY OF
MONEY TO GIVE BACK.