Gaining equity

6 Replies

Hello,

First time poster, long time reader. When you rent a property I know you want to have extra money left over after paying property taxes, maintenance and taxes etc, but in town where it is more competitive does anyone settle for just the equity in the home that the renter is paying? Obviously you aren't making money because you haven't sold the house but your net worth is rising. I know there are always problems but assuming that the rent coming in covered all expenses just up to the break even point would anyone get rid of that property? Its not costing you anything but you aren't making excess. Just curious don't beat me up too bad.

Scott, that is a great question. I would say it all depends on your investment goals. Some people may be into it to have some short term success, or to support themselves so they don't need a 9-5 desk gig.

The way I look at it is that if I can break even every single month and have my tenants pay the mortgage and all the expenses that come along with owning the house, then I am making out. My personal investment goal is to use this as a retirement fund. I don't take a dime out of what I profit each month, I keep it in the bank for when I will need the money for the next repair. If I can hold this property for the full 30 years and never have to put a dime of my own money into it, I say that is a win for me and my retirement days!

Maybe down the line my opinion might change if I acquire more properties, but for now, my one property is my long term investment fund!

Awesome thanks, we are in the same boat and that was what I was thinking. I appreciate your reply!

@Scott Oswald

Make sure your expenses include things like CAPEX, vacancies etc. If you plan to hold it long term, you will need to eventually replace the roof, HVAC etc.

Appreciation play is nice but never guaranteed. However, if the property value is rising, your rent will rise as well. Keep that in mind.

Gotcha, even if you do have to pay some out of pocket you could still be making a nice ROI each year. But I understand that you want a couple hundred left over each month.

I do not work for free. There are zero guarantees that you will ever take a dime out of a property when you sell so in reality your are speculating not investing. Very poor retirement plan. Every penny of equity is costing you money every month it sits dead in your property. 

If you die before you retire, the market crashes when you need the money or any of a thousand other reasons you have wasted your time dealing with tenants, repairs, taxes, etc. Your money would be safer in a metal box under your bed.

Break even ?? And you don't compensate yourself ?

If this was to go on for more than a year I would look at what I was doing wrong, rents to low, maintenance costs to high, Utilities to high for age of mechanical, or property taxes to high, or insurance to high. Get some bids on insurance, contest your property taxes, replace old aged furnaces if needed.

I wouldn't work for free, and no guarantee where market will be when you decide to sell, and upkeep on exterior, roof and other inside items will continue to be a cost factor.

Get your pencil out and see what needs to be done. 

Understand depreciation, and yes a property can be a write off for a few years if it's not making income but everything ages not everything appreciates in value, and some years your gonna have emergency fixes so you need a reserve in budget. 

It's a business, I wouldn't feel like going in if I wasn't getting paid.

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