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FIRE Through Geographic Arbitrage

Take Advantage of Bad Real Estate Investors by Renting From Them

You can rent most property for way cheaper than what most owners are paying every month.

The rental market is controlled by high-end properties. When a brand new apartment building opens in an upscale urban area, that property sets the price/sq ft. at which all others must price themselves below.

The good news is that even though prices tend to rise over time, the features included in those prices improve, too. That means that older properties that don't include as many valuable amenities can't appreciate as fast.

What is not immediately obvious is that because prices must hang together and older properties must charge less than newer ones, rental prices are not set by what the owner paid to acquire the property.

If an owner paid too much - they bought when the market was high - they can't automatically charge renters for that mistake because the rental market won't let them.

I know this because we rent from a landlord who paid way too much for the property. I know for a fact that my rent is $1000/mo LESS than he pays for his mortgage, property taxes, homeowners' association fees, and maintenance costs.

You heard right: $1000 LESS PER MONTH! We pay less than 2/3 what he does.

You see, most landlords are terrible investors. That makes renting a great deal for you.

Why do people pay too much for real estate? Because they think of homes as appreciating assets instead of a simple commodities.

When you buy a home, you make the most money when you can BUY VERY LOW and SELL VERY HIGH - like a commodity.

It takes a LONG TIME to make money via value appreciation. On average, homes appreciate in price 3.7% per year while inflation depreciates our currency by 3.0% per year, so the real value of a house moves up slowly.

Most people don't get lucky enough to buy at the right time. They come in late after the market has been "hot" for awhile and they buy when prices are high.

When they turn around and rent out the property, they don't think like business people. They don't think about trying to make positive cash flow every month.

Instead they think they have bought an appreciating asset - an investment - so it's okay to them if their rental income doesn't cover it every month, because it will eventually be worth a lot. (But not as much as the same amount of money invested an a whole-market, low-cost index fund.)

These bad investors are an opportunity for the renter.

You can live in a nice place that you couldn't afford to buy - and are smart enough NOT to buy - for little money. The down-payment you save, you invest. That's how you get free at forty.


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