Several Newbie Questions
Hi guys,
Thank you all for welcoming me to BiggerPockets and for reading over my first post!
My name is Will, and I live in San Marcos, TX. I am very new to the field of real estate investing, but have been reading everything I can get my hands on from Bigger Pockets and other sources for several months now.
To summarize my situation, I am just starting out (currently in the process of searching for my first investment property), and I seem to have more questions than answers in certain areas. Hoping you guys can help! Here are my top three questions below.
1) When I search for properties on Realtor.com or any of the other listing sites, there is often a rough estimate given on how much the monthly mortgage payment will be. What I don't understand is I'll see a property for roughly $100,000 give a mortgage estimate of let's say $900/mo, but then I'll look at a property for $200,000+ and it will list the mortgage estimate at let's say $1,100. If the property price is double (or more than double), why isn't the mortgage estimate double as well?
2) I am still struggling with the concept of how buy and hold real estate "builds wealth." To keep the example simple, if I purchase a duplex worth $100,000, comes with a monthly mortgage payment of $1,000, and I charge my renter $1,000/mo. in rent- all I am doing (in my mind) is breaking even. I understand that my renter is helping to pay off my mortgage and build equity, but where does the "wealth" part come in? Where does the "free and clear, automated income" part come in? Even if I have multiple properties, how is the simple fact that my renters are paying off my mortgage helping me to "build wealth?"
People talk about becoming full time real estate investors who don't have to go to a 9-5 job anymore, but I would imagine that this would require not only owning TONS of properties with full occupancy in each, but having all the mortgages paid off and receiving free cash flow each month. Even then though, this would take a very long time, and in my mind would still not qualify someone as "wealthy," or even a millionaire; even then they'd only be receiving a few thousands a month in cash. I feel like I am missing a huge chunk of the puzzle here, and am hoping someone can help.
3) For my final question, as an extension to number two, let's say I have 5 properties in my name totaling $1,000,000 value. Simply because I own $1,000,000 in assets, does this qualify me as a "millionaire?" What if I am "asset rich" but "cash poor?" Seeing as buy and hold investors don't typically make a habit of selling/liquidating their properties, is my net worth really $1,000,000?
As an example, if I want to go to the store and purchase a $50,000 watch, I can't just go up to the counter and say, "I own $1,000,000 worth of properties; I'd like to purchase that $50,000 watch please." They'd laugh me out of the room and tell me to cough up the cash. If I simply have renters paying off my mortgages each month to the point where I'm breaking even or maybe cash flowing a few hundred here or there, I may 'have' much in the way of cash. So am I really a millionaire, simply because I have a million in assets?
I know these questions are pretty off the wall, but I am very confused as you may be able to see. I hope one of you fine men and women of Bigger Pockets are able to answer my questions to help me finally put my tired brain to rest! I have been draining myself trying to understand the answers to these questions, and any help anyone can offer me would be very appreciated. I seem to just be missing the underlying purpose of the buy and hold strategy as a whole. Thank you again for reading; I look forward to reading your replies!
Will Dennis