Does anyone buy and hold rentals for solely future profits?

Question

So I’ve read about some of the numbers people should get back each month from cash flow off their properties, but does anyone buy and rent to just make all the profits after the mortgage is paid off?

Mike Dymski · Answer

Internal Rate of Return - use it for investment decisions.  Monthly cash flow is only one component of profit.

Josue Velney · Answer

@Paul Kennedy some of my best rentals started off this way. The first rental I purchased in 2010 at 450k today it is worth 1.1M. This property nets $1500 a month now. I got really lucky when I did not know anything. Today I am a little smarter. My rules on investing would not allow me to buy that property. I am currently selling more than buying because of where I believe we are in the market. I will see you at the top my friend.

Frank Wong · Answer

If you understand how to use it and have the proper reserves timeline and cash flow from other properties it works.  If you are buying a house and taking -$1500 loss a month and say prices always go up I will be fine the house will be worth X in 10yrs. LOL Then no don't do that strategy. Don't even invest because you don't know what you are doing. Get your education.

Appreciation is not guaranteed but history is on that side.  The only guarantee is the facts you have to work with today. It may or may not appreciate.  You may not be able to hold the asset long enough to get your exit.

Catherine Aubale Epstein · Answer

Mike,

I agree with you.  In Nashville, I started buying 7 years ago.  We were just breaking even barely and one year at a time, the rental market went up and up and up and now it is giving us great cash flow.  It just took a couple of years, but we knew it, could support the properties and now the value has more than doubled and we have wonderful tenants...and cash flow.

Just a thought.  Immediate cash flow should not be the only decision making. The future value of the area you are investing in and the outlook on the city.   IRR is also important!

Catherine Aubale Epstein · Answer

Hello,

I am a real estate broker first in San Francisco and now in Nashville with 35 years of brokerage.  I have encouraged buyers (and myself) to buy income properties even if there is no cash flow immediately.  You will though have to be sure of the location and market you are entering.  If it is a growing market you should be pretty safe if you are willing and financially able to hold the properties for a few years.  Look also at the future resale value.

Hope this help.

Nathan Gesner · Answer

There are tons of people that do this, primarily out of ignorance. They don't understand the value of cash flow or know how to evaluate the performance of a particular property. They simply have some money, they buy a rental, and they hang on for dear life. 30 years later, the property is paid for, they Landlord is making good money, and they're happy.

I see this all the time and know that real estate is a pretty forgiving market if you work at it. These investors could make much more money if they had educated themselves and bought smarter, but at least they tried and hung on long enough to enjoy success.

Larry Turowski · Answer

@Paul Kennedy Let's do a thought experiment.  Say somebody sold you a property at a really good price and said they would hold the mortgage for 30yrs.  Heck, they would even roll your closing costs into the mortgage.  The property won't cash flow but it won't bleed money, either.  All expenses including that new roof in 15 years will truly come out of the rents.  You really will not have to put a penny into it.  Would you take that deal?  I would.

Now let's enter the real world.  I've never done that.

Russell Brazil · Answer

Lots of people

Josue Velney · Answer

@Paul Kennedy it starts with one. I believe house hacking is the best way to get in the game. I will see you at the top my friend.

Paul Kennedy · Answer

Thanks for your time and knowledge,  but you wouldn’t suggest doing this just to get it going correct?

Does anyone buy and hold rentals for solely future profits?

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