Ask an Expert: John Baen

John Baen (Photo by Adriana Salazar)How can you start investing in real estate?

Home ownership is the ultimate "American dream," but buying real estate also can build wealth. John Baen, real estate expert and UNT professor, says the best investment you can make is in your home and there's never been a better time to buy in the North Texas region.

"We are the Silicon Valley of 1955," Baen says. "Home appreciation is rising rapidly. Major corporations are moving their headquarters here and adding new jobs. And interest rates are at record lows."

Baen offers the following tips to buy real estate:

Invest in yourself first

  • Save to buy your first home if you don't already own. You'll need a down payment ranging from 5 to 20 percent of the home's value.
  • Buy a home under $200,000 and opt for a 15-year mortgage to get the biggest bang for your buck.
  • Only a third of your income should go toward your house payment. Rent out rooms for extra income.

Buy additional properties

  • After a year, convert your whole house to rental property and purchase a new home to live in. Be sure the anticipated rent can cover the monthly mortgage bill -- about 1 percent of the home value. For a $200,000 mortgage, the monthly payment will likely be $2,000.
  • Find an area with good job growth and strong schools to attract tenants.
  • Own each home for the entire length of the mortgage and repeat as often as you can. Five homes will be paid off in 20 years, and you should have an investment worth more than $1 million.

Avoid pitfalls

  • Hire professional management to take care of maintenance, lawn care and rent collection. Be prepared to pay 8-10 percent of the monthly rent for this.
  • Use background, criminal and credit checks to find responsible renters. Late rent payments and tenant evictions are costly.
  • Keep a reserve for repairs and enough for at least one mortgage payment for vacancies. If the rental is less than 10 years old, a $3,000 reserve should suffice.

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