I LOVE spreadsheets\u2014lots of information, details flying around everywhere, on everything from\u00a0expenses to profits. I love detail. The more, the better. We as investors spend a ton of time pouring over P\/L sheets and rent rolls for our current and future deals, and we have to.<\/p>\n
However, I had an interesting conversation with a real estate broker a few weeks back over lunch, and while chatting about a potential real estate deal, he said something very\u00a0interesting. After we spent some time dissecting a few different scenarios on a couple of different deals, such as the locations, the neighborhoods, and our plans with the units, etc., he asked us, “How long do\u00a0you plan to keep the units?” There are lots of specific questions in understanding the in-depth numbers and the specifics on cap rate, etc., if you really want to grasp the whole deal and know what you’re\u00a0getting into.<\/p>\n
The next thing out of his mouth caught my attention.<\/p>\n
He said something to the effect of, “I know guys who can say they’ve owned the building for 20 years\u2014they’re the ones\u00a0making money.” I sat back in my chair\u2014and it really made me ponder.<\/p>\n
On the day to day it’s easy to get tied up with the little things, like service calls and repairs, or an over-texting tenant, and it’s easy to lose sight of what the end goal is\u2014and for us, that is holding properties for long term cash flow, which then equates to long term wealth.<\/p>\n
Let’s say you buy a single family rental for $100k and put your $20k down, and you own in a traditional type of financing scenario. You get a long term mortgage note on it for 30 years at 4%, and the property rents for $1,100.<\/p>\n
This is obviously very general, but for simplicity’s sake, you have $224 cash flow after expenses. Not to mention you are now depreciating your property, and the tenants are paying down your principal balance.\u00a0You’re off to a great start.<\/p>\n