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This recent article in the Wall Street Journal argues that being and active landlord is not as easy as some people suggest.
Is it true?
Are rising housing costs making it harder to earn passive income?
Those of us on the operations side at Nighthawk Equity know it certainly is true that it can be difficult to implement and deliver on a business plan. It's a lot easier to imagine reality on a spreadsheet than to actually do it in the real, three-dimensional world.
(Check out this recent post on our Instagram.)
The good news is, as one of our investors, you are NOT trying to be an active landlord!
You are handing all of that off to our team, who live and breathe this stuff every day.
The article talks about mortgages in the 10%-12% range. They don't say it directly, but they are almost certainly referring to house flippers. Multifamily is a much more secure space and consequently, has much better debt terms.
Just last week (December 15,) we locked in a loan less than half that amount at 5.87%.
So again, the concerns mentioned here are not relevant to the deals we are pursuing at Nighthawk.
The article also mentions the risk inherent in using your Home Equity Line of Credit to invest in real estate and we agree! That's risky for at least two reasons.
First, the cashflow on your investment is probably less than the debt service there, so anyone who does this has negative cashflow.
Second, a HELOC has variable interest rate and so their future debt service is unknown.
Nighthawk always buys deals with either fixed interest rates, or buys “interest rate caps” to de-risk our debt. And we interview all our investors and don't recommend that they invest with HELOCs.
One more thing this article mentions is the importance of understanding the law where you're buying.
Once again, we agree!
Nighthawk is careful to invest in states with favorable landlord-tenant laws, in order to minimize the chance of legislators stopping ownership from collecting rents due from tenants.
So is it more difficult to earn passive income? For house flippers, this may very well be the case, but investing in multifamily offers a less risky, more stable option.