Is Landlording worth it in the long run?

Question

Given all the repairs and issues that we all deal with as landlords, is it worth landlording if you stick it out for the next 20 years on a property ? My over all question is, are you seeing the financial gain or find it motivating to continue? We are hoping to use our rental property as a nest egg to pay for our daughter's college expenses/schooling/income in the future. We have a mortgage, I make 600 dollars after my mortgage. I'm sure this number can change if the rental prices drop. If I just stick it out in the long term, do I have a better chance of being successful?

Matthew Becker · Answer

I live in Idaho, which is Gun, freedom, family, God, and Landlord friendly, and it is gorgeous with lots of water.  Generally, our tenants take good care of our properties and leave them not trashed.   I own many properties, but I started with just one, like most people working at a W2 job in 1991.  Then bought more. I tried to buy one a year when I was young.  I always teach my employees to buy by 20 and have 10 by 30.   Then all they have to do is make enough to support their family.  Retirement, at that point, is not a concern.

If you buy 10 houses by age 35, with rent increases, they should all be paid off by 55.  In 20 years, even entry-level houses will be worth 1M each if you are in a desirable location.  So you will be worth 10M.  How else can someone do that?

Charles Perkins · Answer

Is it worth it? Honestly I've come to believe you can do well as a long term landlord in many parts of the country.  All of my property is in Washington and has been bought over a period of 35 years.  My wife and I have done well and I would say yes it has been worth it.

Not everyone is cut out to be a long term landlord.  The property one buys, the micro market they buy in, and the buy box decision can all play a factor in success.  For us, cash flow began very low, but appreciation, increasing rental rates, value add and other factors have significantly increased cash flow along side appreciation.

Every market has challenges to overcome.  If you understand the market you deal in, buy right and have the business sense needed to handle situations that come up you can succeed others have.

I'm reminded of those that were highly successful during the great depression.  Many lost everything yet some started new businesses and I'm sure and/or invested in RE and did quite well.

David Krulac · Answer

Four of the biggest advantages of long term landlording are property appreciation, rent increases, debt pay down, and tax advantages. Long term tenants pay down the mortgage until the mortgage is paid off and then cash flow sharply escalates. Property prices have escalated tremendously over the last 5 years, further propelling values of rental properties along with the rent of the residential market.  Compare 2019 prices with today's prices, and in most places there are big differences. Our criteria for buying rental properties are desirable neighborhood with mostly owner occupants, good schools and low crime rates.  We have had tenants stay over 30 years and the average tenancy is 12.5 years. One multi building we owned for 37 years, improving the property over the years and ended up selling it for 6X what we paid for it. Another multi unit building we owned for 24 years and sold for 3X.  A single family detached house we oned for 25 years and only had one tenant we sold for 3.25X in 2019 and it now worth $100,000 more than we sold it for.  An extraordinary deal we did we bought a house for $30,000, and the first tenant paiud $2,050 a month in rent. We owned it for 22 years and sold for $435,000.  It was well worth owning as a landlord.

Henry T. · Answer

Yes. Much more so if you're in a landlord friendly state. Forget West coast. Think Idaho, Arizona.

Ken M. · Answer

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Good question.

Over time is a property worth more, typically yes. But, Not always. Is the time it takes, worth the hassle and cost considering the time value of money?

What we do differently with our investors, is teach them to buy properties below market price, typically using creative finance so their entry amount is a greatly reduced cost,

then they sell the property on a Lease Option getting 10% down (so, on a $350,000 property, that's $35,000 back to the investor) on a 2 year or 3 year Option and cash flow $400 or $500 a month.

That presents the opportunity to purchase more properties faster (not using a bank). Then when they hit comfort level, they choose to simply keep the properties long term in their own portfolio.

In my opinion and experience, the faster you get into multiple properties, the faster you reach your goal.

Nathan Gesner · Answer

"If only I had kept that house on Maple..."

Everybody regrets selling property. If you stick it out, the gains are phenomenal.

I bought my first investment for $67,000 with $10,000 down. It was cash flowing $25 that first year, but it was $400 by the time I sold it eight years later. I made over $80,000 when I sold. If I had held onto that property, it would be cash flowing $800 and have $180,000 in equity.

The only reason to sell property? To invest in a better-performing investment or to move you closer to a specific goal.

Theresa Harris · Answer

It really depends on your market and timing.  I've had a rental I sold for what I paid for it breaking even on the sales price, but I did make money every month (when it was rented).  I've also had places where I did make a bit each month, but because I held onto it long term, the tenants paid off most of the mortgage for me and because of the market, I sold it for 2.5x what I paid for it (many years earlier).  Most of my rentals have seen a significant increase in price (on paper) since I bought them, but you never know what will happen and ultimately it is the price when you sell that matters.

Timing is everything.  With long term rentals, you are unlikely to make money in the short term-it is the a long term gain (tenants paying your mortgage and hopefully the house goes up in value).  It also depends on mortgage rates and the current interest rates-you might be better buying a home or putting your money in a high yield savings account.

Depending on how old your daughter is, it might be a good opportunity to buy a rental.  Take her along  as she grows up and teach her finances.

Is Landlording worth it in the long run?

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