Glaeser has studied housing data from every metropolitan area in the country between 1980 and 2004. Based on his research, he has estimated that on average, for every dollar a city gains in prices over five years, it loses 32 cents over the next five years. It’s a simple and brutal equation. “New York City has had a great past five years,” he points out. “This bodes poorly for the future.” For someone who bought at the top of the market, seeing one-third of the value shaved off the purchase price is a potential disaster, especially if there’s a home-equity loan or second mortgage involved.

In housing, you know the land cost, county assessment, cost to build a structure of that size. You also know the local economic trend, population growth trend, and most importantly, you know the zoning difficulties for new development. All these information won’t lie to you. They are readily available from county planning department and from local non-profit research institutions. Therefore, housing investment is almost like a risk-free investment to an EXPERIENCED investor. If a house is sold at 30% below county assessment, and already close to land cost, you know you get a deal.

Because it’s a math concept you must understand. We know that absolute return from housing is less than that from stock market. However, when we invest in housing, we usually borrow a large sum of money, many people borrowed more than a million dollar. Due to this nature, a smaller return on a large sum of money will also yield big absolute return. It’s the borrowing power from investing in housing that many people failed to see. On top of that, the borrowed money can be offset by rental incomes, thus, technically, it’s a fully leveraging concept with possibility of zero down from the investor and he is able to obtain all return in the future. Thus, the actually cash-on-cash return is huge over the years, much more than 8-9% from the stock market (without using margin or option)

At the beginning, probably the first 10 to 15 years, you may not realize much income. Because all your rental income checks will be used to pay all the mortgage, tax and insurance and other fees. As time goes on, once it get into the second phase, the original mortgage balance will be reduced and equity is accumulated, most critically is that inflation has worked its way to boost rental rate. In this second phase, from year 11th to year 20th, if you survive the first 10 years of hard work, your house will become a pure income generating machine. It’ll become exactly a money tree from which you can shake down cash income.

Give prospective tenants standard Rental Application Form in my county. In the form there are many spaces to fill in. Below I included a link for standard “National Association of Independant Landlord” form for your reference. Since you are NOT a member of this association, you should follow this form as example and type a similar form for yourself using MSFT word. Please note that at the end of the form you should specify the application fee. In my case it’s $25 per applicant in the lease. You use that fee to check credit. Also, by signing this form, the applicants are giving you the right to check their credit. On the application form, you can type in your additional requirements, such as no pets, no smoking so they if they fall into one of these category, they won’t submit the application at all.