Doesn't make sense

Question

Hi folks, I got on to this website because of problems that were not my own--my parents. I was lucky to sell their rental homes for what they bought them for and I KNOW how lucky I am for that.

Here is my my question. I have been investing in different markets for many years. Won some; lost some.

Recently I have been learning a lot about what you people with rental properties go through. This website is VERY interesting!!!!

Ok, so here is a very short-sighted vision of what I have seen so far. There is a large contributor on this site called MikeOH. He seems to be the biggest thing going here. He talks about getting $100 month cashflow off his property with 30 % equity (at least at the time of purchase).

For many years I have been investing (besides doing nursing) and I can easily get 6 to 7( very liquid) percent return on my money without the landlord nightmare.

Can anyone please tell me where rental properties make sense>>>

His job seems to be 24/7, whereas I take off for months at a time!!!!

Alexis 
 
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Michael Rossi · Answer

Alexis,

If rentals won't cash flow in your area, then I wouldn't buy rentals!  However, people say that they can't find properties in every market.  The vast majority of rentals in the United States are bought at retail and the vast majority of newbies fail in a short period of time.  That is true in my market here in Ohio.  In fact, one of my primary sources of deals is from failed landlords who become DESPERATE to sell.

There is absolutely nothing wrong with getting 6-7% return on your money.  That's very good right now and comes without any hassle and a lot less risk.  It also sounds like getting away for months at a time is important to you and that certainly precludes hands-on management of rentals.  There is nothing magical about rentals.  If you're happy with your lifestyle and the return on your investments, you should stick with that.  Owning rentals is NOT the be-all and end-all of life  -  not even close!  Operating a rental property business is just another way to make money.

Here's what I like about the rental business:

I have already bought 12 rentals this year and will be doing 4 more before year end.   My little $100 per month cash flow means that I'm getting a raise of $1,600 per month thanks to those rentals.  Now, consider that I'm also being paid to do the management and maintenance on those rentals.  That earns me another $100 per month per rental.  So, my total increase in income is $3,200 per month from just the rentals I added this year.

Now, consider that I bought all of these properties at a BIG discount to retail.  If the equity pickup per rental were only $20,000, that means I picked up another $320,000 in equity (net worth) this year.

All of this doesn't even consider the tenant paydown of the principal, the tax advantages, etc.

That's what I like about rentals.

Mike

Scott Weaner · Answer

Alexis, remember, the rentals are MikeOH's job.  His livelihood.  Most could not take off months at a time from their job.  Some use the rental investments as pure investments, instead of or in addition to their stocks, etc.  If done right the returns can be much more than 6-7%.  If done right the tenants are buying the property for you.  No one will buy stock for you!

Rich Schroeder · Answer

I'll let Mike speak for himself.  However I do see where you have already answered some of your own questions...

-You say that you won some, lost some. If you buy and manage right, you win from day one.

-you make 6-7% on your money. If someone else purchases a property with no money down, 30% instant equity, and $100-$200 monthly income...what is the rate of return?  Your calculator will probably go crazy, unless it knows how to calculate infinity.

Very simply that's why people get into rentals. It's a lot of work, but if done right you certainly can make a lot more than 6-7%.  As you can see you've already answered your own questions.

Thanks 
-Rich

Rich Schroeder · Answer

Oh, one more thing...

don't forget that cost of living increases at least 4-5% each year...so that brings your 6-7% down to 2-3%.  Not trying to be harsh, but this again is another reason to get into rentals. Then again, there are tons of ways to make money, not just rentals.

Thanks, 
-Rich

Alexis Kennedy · Answer

Can't see how the numbers work in California. If they do, let me know what you know.

Alexis