San Antonio, TX · Member since 2017 · 3 posts · 0 votes
So, I'm not looking to get rich, or anything crazy, I just want to make a comfortable living, make passive income off of real state rental properties, I know it will take a long time and patience. I'm not looking to own a ton of properties neither.
Here is the question, might be super basic though sorry, I looked around and couldn't find an answer.
HOW do you make actually money off of rental properties? Say you are starting out... you buy an apartment for $25k, plus monthly maintenance. You rent it out for about $450/month, and like, your actual monthly returns are... like... say $250 right, so how does this make money? It would take like 20 years for the unit to pay itself off and start making you some cash flow. No? so what I'm trying to understand here is...
Whats the basic concept of making money this way? I would like to make $5000/ month on passive income with rental properties, but I would like to see that return in no more than 5-10 years, how do you actually do this?
Thank you all for reading, any future wisdom provided, much appreciated.
I really haven't ever met a real estate investor that regretted buying too many properties. If you're patient items 1-4 above will slowly make you rich. The cumulative effect of owning property adds up over time. The property works for you 24 X 7; 365.
If you couple this with a discount purchase and/or force some appreciation through improvements you can couple these strategies with owning property long-term. I have developed 54 projects over the last 6 years that have made millions for we and our investors. That money is all rocket fuel that can be used to buy more property and get the projects working for us day in and day out.
I would suggest you start with a copy of @Frank Gallinelli's book you can purchase on Amazon:
will also teach you about loan types for residential properties. Ray Alcorn's Dealmaker's Guide To Commercial Real Estate is the best book I have found for commercial properties if you head in that direction.
Start small, learn the game, and get those properties working to make you wealthy. My only regret over the last 15 years of investing is not purchasing more buy-and-hold properties.
It is for long haul. You manage to reduce cost and acquire the experience. It may take a couple of tenants to get to a point you feel there is cash coming your way. Most is tax write off as starters.
The cap rate is nothing to brag about. Financial planners chuckle on the lower rate of return(Cap rate) vs liquid equity or REIT mutual fund investment(14%).
Same about anything or everything. If you bought Apple stock in the 1983 most lost money or broke even. Those hang on to the stocks when it was ready to file bankruptcy stayed on. It was not until recently the stocks look so cheap. I think it will be 20 years later you realize you have steady cash flow not before.
I'm an engineer. In engineering, we use simplified models to understand what a system is doing at a fundamental level. Then we add back in all the complexity later.
I do that here with debt, leverage, etc. Say you buy a house for 100k cash, it goes up in value 10% to 110k in one year. You have a gain of 10% of your initial investment.
you buy a house for 100k cash, it goes down in value 10% to 90k in one year. You have a loss of 10% of your initial investment.
You buy a house for 10k cash, 90k loan, it goes up in value 10% to 110k in one year. You have a gain of 100% of your initial investment.
You buy a house for 10k cash, 90k loan, it goes down in value 10% to 90k in one year. You have a loss of 100% of your initial investment.
So what effect does debt have on the system? IT MAGNIFIES returns. That's it. Simple.
As investors, we should strive to have the largest returns possible. Especially when we don't have much money in the first place. If you are a billionaire, you will probably have to take lower returns. Getting high returns would be difficult with that amount of capital. However, as a new investor, your goal should be to maximize returns as much as possible.
Now adding back in all the complexity with loans... and there is a lot of complexity. The biggest point to hit on with that complexity is additional cost. Loans will add in a bunch of additional cost, lowering your returns. Your returns will still be higher, but not as high.
To give you an example of the kind of returns you can expect, I will use myself as an example. I started investing in 2009. I have invested 50k in RE in down payments and repairs. I took out loans for everything I purchased. I now have 500k in equity, 8 years later. That's an annualized return on investment of 33.7%. A 900% total gain.
Now, to calculate my ROI if I had bought those same properties cash... I get an ROI of 6.3% and a total gain of 62% over the same time period. I would have done better in the stock market...
That's not to say there isn't a time and place for buying cash or owning free and clear. It may be that you aren't interested in building wealth and you are more interested in wealth preservation and cash flow. That's when you own free and clear.
@Joseph Hennis I agree but better yet, don't have any money in the property so your upside returns are infinite and your downside doesn't matter as long as the property cash flows comfortably. I just got started this past year and I'm 2 for 2 doing this. I've got 35% free equity in one and will have 25% free equity in the other with zero out of my pocket. It's the only type of deal I look for now having done it a couple of times, speeds up the process significantly.
HOW do you make actually money off of rental properties? Say you are starting out... you buy an apartment for $25k, plus monthly maintenance. You rent it out for about $450/month, and like, your actual monthly returns are... like... say $250 right, so how does this make money? It would take like 20 years for the unit to pay itself off and start making you some cash flow. No? so what I'm trying to understand here is...
Nobody scores big immediately. You have to build your portfolio slowly, intelligently, and w/ hard work. Otherwise, everyone who can save a measly $20-50K would be buying a property and quitting their jobs!
I don't think it is about $250 a door, $175 a door or $78 a door * 100 doors. It takes a combination of the few things to be successful in business: ideas, opportunities, capital and execution for example. Say today you have 10k in capital and opportunity to make $250 a month. Capital can generate opportunities. So can experience. Opportunity can generate capital and so on. Well, say you are in business for 3 years. If you still have 10-20k in capital and opportunity to make few hundred dollars - it probably wasn't for you :) If you are not looking for business, that's another story. Join investment club or buy treasuries. Good luck.
Jesse Flores Realistically, a lot of this has to do with your income level. It's going to take a long time to get to $5,000 a month if your current income today is $3,000 a month. You just won't have enough capital to do anything quickly. And waiting for one property to generate enough (free) cash to buy a second equivalent property takes a long time. Best avenue: work hard enough to earn great W2 money so you can accelerate your ability to recharge your reserves to buy additional properties --- and be able to support those purchases when it comes to DTI ratios.