BUYING LONG TERM RENTALS

Why Rental Properties?

Rental properties can be a great way to build wealth and achieve financial freedom. A lot of people think it is tough to invest in real estate, but it might not be as hard as you think. There are so many different avenues you can take as well as different was to generate income and wealth. I love real estate for the asset I am buying and statistically over time is going to appreciate or at least stay the same. All while the rent is paying down my mortgage as well as providing me some income each month.

Why Types of rental properties?

There are all types of rental properties. The key is to find your niche or strategy that meets your goals. I do recommend starting small (don’t bit of more than you can chew). I would say maybe start with a duplex rather then a buying a 20-30 unit apartment complex. With that said, the most important thing though is to get started. As nike says “Just Do It”.

Types of rental properties:

• Single Family Homes
• Small Multifamily (2-4 units)
• Large Multifamily/ Apartment  (5+ units)
• Commercial Buildings
• Mobile Homes
• Vacation Rentals

How do you make money in rentals?

Cash Flow

Cash flow is the the most come or well know way to make money. The is basically what you make from the rent of the property after all expenses are paid (including mortgage).

Example:

• Single Family Home- 100k purchase w/ a 80k loan ( you put 20% down)
• Gross rents – 1,200 a month
• Mortgage including taxes and insurance- $525
• Maintenance/Utilities 15% – $180
• Vacancy 5%-  $60
• Property Management 10%- $120
• Cash Flow – $315

I know some people many not think $300 a month is not a lot, but think if you had 10 of these or more. Also rents, mortgages, and expense will all vary. So properties will make more or less than others, and some may not make any money at all.

Buy a deal (below market value)

I have also heard the saying you make your money when you buy the property and not when you sell it. One of the quickest and ways to make money in real estate is to create instant equity by purchasing below the market value. 

Example:

• I bought a house for $55,000
• As is it was probably worth $65,000-70,000 (instantly I have $10,000-15,000 in equity). 
• I put in $15,000 for improvements and to get higher rents and a better renter.
• After that it rented for $950 a month 
• The new value came in at $100,000. I ended up selling it for $97,000

Tax advantages

Rental properties have some great tax benefits/advantages. I am still diving in and learning more about this. Below are some tax advantages I am aware of.

• Almost all the expenses on a rental are either deductible or depreciable
• If you have a mortgage on the rental. The interest paid on that mortgage is an expense and is deductible.
• The property itself can be depreciated as well.

I know there are other advantages out there. These are just a few.

Paying down principle

In short your rental income is pay down the loan (if you have a mortgage). So over time that is getting paid down.

Appreciation

To me appreciation the bonus. This isn’t something you can count on. Although statistically it seems like the real estate market over time continues to go up, I still don’t bank on it. It can though be a very big bonus sometimes. 

Example:

• Bought my first duplex in 2009 for $187,000
• In 2018 it appraised for $350,000
• Also over those 10 years my rent was paying down the principle of the loan.

How much money do you need to buy a rental?

This is part where people either get discouraged or confused. Some people look at it and say I need to have how much money. Below are two different examples using the same property. So no matter what stage you are in financially or in your investment journey you can still get started.

Investor (non-owner occupant) – 20-25% (I have found some for 10-15% down)

Owner Occupant Rental (1-4 units)

• FHA- 3.5% down
• Conventional- 3-5% down
• VA- 0% down
• USDA- 0% down
• NACA- 0% down

Example 1 (investor 25% down)

• Duplex purchase price- $100,000
• down payment- $25,000
• Closing cost 3%- $3,000
• Reserves/Repairs- $5,000-10,000
• Total – $33,000-38,000

Example 2 (FHA Owner Occupant 3% down)

• Duplex purchase price- $100,000 (you live in one side and rent out the other)
• down payment- $3,500
• Closing cost 3%- $3,000
• Reserves/Repairs- $5,000-10,000
• Total – $11,500-16,500

Things to know:

There is a lot to learn when investing in real estate. Somethings to know as you are getting started.

• Know your market you plan to invest in.
• Decide what type of property you want to invest in.
• Know the numbers (income verse expenses)
• What are your goals/ end game.
• Will you manage the property or hire a property manager?
• Will you buy a property that needs work? If so who will do the work? Or will you by a turnkey property.

6 steps to buying an investment property 

My Thoughts/Conclusion:

I love real estate and real estate investing. I just feel the pros out way the cons. All the work is worth it. This is the main avenue I am use towards my financial freedom and I have seen some great benefits from it. If you are debating or thinking about doing it, I say give it a shot. Just try something small and something you feel like you can handle. You got this!