When beginning this intrepid adventure it helps to have a plan. What are you trying to accomplish considering the above four ways to make money. Three of them can work as one goal, but not all four. Cash flow, classically, is reserved for an investment property and not an owner occupied one. But whether you choose one, two or three goals for yourself you must at least choose one.
Price appreciation is both a function of time and participation for total success. The real estate market is greatly depressed in some areas, down 10% in the majority of American cities and actually doing fine in a few selected areas in this country. One can simply go in and purchase a property to live in and wait until the market turns and sell it for a profit. Is that the best and brightest move at this time? Not if you are looking for the maximum return. The majority of people fail to realize the total upside that can be achieved by renovating a property, and or by adding on to it which will increase its utility. Change your thinking and you can change your return.
Understand your plan and you can identify a mortgage that will enhance your chances at a profit. If the goal is to be accomplished in 3 years, and you figure that it could require 5 years, then a 5 or 7 year (fixed) arm will be better for you financially than a 30 year fixed.
If cash flow is to be king then you need a long term fixed loan, 30 or 40 years and let inflation keep your cash flow rolling in for you. You needn't worry about price appreciation
if cash flow is what you are seeking. The price will grow as the cash flow increase.
Tax benefits come from mortgage interest and real estate taxes primarily. If this is what you are looking for then an interest only loan, for as long a period as you desire should be the best loan for you. Why? Because your entire payment is deductible.
Amortization, the paying down of the loan, is the best way to protect yourself in a dangerous market. See "Come On In The Water Is Freezing" and you will understand why I feel this is as important as anything else you do. Not only does it protect you but also enhances your
profit position.
There are really only two thoughts you should take with you from this column: You always make more money doing what takes the most courage, going against the popular trend. That doesn't mean that every time the majority are going one way you should go the other.
It does mean making a plan before you decide on moving forward and carefully execute it
all the way to the finish. Each are important and both need to work together. Without one or the other you are really limiting your chances for success.
Now, it is time to decide! Your time, not mine.