Ann,
I don't know what Carlton sheets are either, but I am a real estate investor and I have created a very nice living and tremendous wealth from properties. And, I have never put any money into any property that I purchased. Today these properties are worth millions and I owe much less in mortgages.
Compare that to taking your money and buying stocks or mutual funds (which I also do). It is much harder to accumulate wealth in the stock market because with a mortgaged property, you have the bonus of leverage. In other words, say you buy a $300,000 property which you determine is UNDER VALUE and at a good cap rate (I'll explain caps next) and you rent it out to tenants. Maybe you put down $50,000 on the property (remember I never put down anything). If the property increases in value by 3%or $9,000 and your mortgage declines in value $5,000 over the course of a year of tenant payments, your return is actually 28%! That is $14,000 divided by your $50,000 investment. That, Ann, is the power of leverage. What was Andy's return on his properties you ask? Try infinity because I borrowed the whole thing. It is like I made money from nothing.
The biggest problem that investors in property get into is they do not do any financial analysis when they purchase. Judging a property by a Cap Rate is a good tool to use. The Capitalization Rate is the Net Operating Income (NOI) divided by the Total Purchase Price. NOI equals All Rents minus All Expenses EXCEPT the mortgage. All Expenses is insurance, realty taxes, electric, gas, water and anything else you must pay for to operate your property (like advertising or lawn cutting, etc). I buy at cap rates only of 10% and higher. I even bought the resort I own at a higher cap than 10%. And, the higher the cap the better.
So, Ann, if you had bought a property in 1988 at a 10% cap rate and it only appreciated by $4,000, you would have still made a good return because your tenants would have paid the mortgage down quite a bit and you probably paid yourself a management fee out of the income.
That is why Real Estate is a great investment. Do your homework. Buy properly. Hold for 10 years. You'll make money even if the property doesn't go up in value and if it does, you'll make even more. - Thu May 1 2008, 19:41