Chicago, IL · Member since 2016 · 29 posts · 8 votes
Hello,
I'm 26 and looking to get into the rental business. I'm truly inspired by everyone's stories and hope to one day too create a cash flow stream for myself through rentals.
I spent time today looking into properties online and running figures. After doing some calculations though and factoring in the costs listed on this site to consider as well as the mortgage it seems that I will only be profiting on average about $300/month.
I could be leaving something out in my calculations and in no way am I thinking this will be a "get rich quick" avenue, but it is hard picturing much sucesss with such low margins. Any words on the subject would be more than appreciated!
Flipper/Rehabber · Fort Wayne, IN · Member since 2015 · 10 posts · 2 votes
9y
If you want to really hit big cash flow right away, leverage is fastest way to do it. But if you're hitting $300 net a month then that's nothing to scoff at. In terms of Fort Wayne, I'm finding a lot of good houses for my buyers in the 46808 area right now with a low cost of entry. Good area and with upside due to impending riverfront development.
Illinois is a tenant friendly state from what I understand vs landlord friendly Indiana. Rental market just across border from Chicago in Indiana is killer if you're looking in that area.
Chicago, IL · Member since 2016 · 29 posts · 8 votes
9y
To clarify, by no means am I saying that an additional $300/month wouldn't be great, simply that I plan to save the vast majority of the first home's rent to continue to help grow the portfolio and it just seems like little progress can be made
Real Estate Broker · Chicago, IL · Member since 2015 · 1k+ posts · 2k+ votes
9y
@Kyle Wilkins If you house-hack, you can potentially earn a huge economic gain. You've got to live somewhere, so when you include the amount you'd have paid for rent elsewhere, the profit can be huge. Even if you don't, $300/mo is awesome and I'd say you are likely neglecting to include some expenses if you are netting that much. Remember that a decent portion of your loan payment will go towards buying equity, so even though your cash-flow (Profit) might be light, your appreciation (profit) when you sell will be strong.
Rental Property Investor · York, PA · Member since 2017 · 377 posts · 315 votes
9y
@Kyle Wilkins - depending on your neighborhood market and what type of property you are looking at, $300 per month might be a good deal.
As @Account Closed said, it is slow money. Start thinking of it as the start to a snowball - the first property is $300 per month, but keep adding on properties and you're on your way to financial independence (or whatever your end goal is)
Chicago, IL · Member since 2016 · 29 posts · 8 votes
9y
@Account Closed Thanks so much for the reply. This makes a lot of sense. As an absolute rookie, where do you usually look for these types of poorly managed, mom and pop homes?
Chicago, IL · Member since 2016 · 29 posts · 8 votes
9y
@Matthew Olszak This makes a lot of sense. That makes me feel a lot better about getting the ball rolling. Just to be curious, my girlfriend and I are looking to make the move to Chicago but I've shyed away from even looking there and have searched more in my hometown of Fort Wayne. What is the market like for rentals in Chicago? Is this something to look into or is best off to look elsewhere?
Flipper/Rehabber · Fort Wayne, IN · Member since 2015 · 10 posts · 2 votes
9y
If you want to really hit big cash flow right away, leverage is fastest way to do it. But if you're hitting $300 net a month then that's nothing to scoff at. In terms of Fort Wayne, I'm finding a lot of good houses for my buyers in the 46808 area right now with a low cost of entry. Good area and with upside due to impending riverfront development.
Illinois is a tenant friendly state from what I understand vs landlord friendly Indiana. Rental market just across border from Chicago in Indiana is killer if you're looking in that area.
@Kyle Wilkins If you house-hack, you can potentially earn a huge economic gain. You've got to live somewhere, so when you include the amount you'd have paid for rent elsewhere, the profit can be huge. Even if you don't, $300/mo is awesome and I'd say you are likely neglecting to include some expenses if you are netting that much. Remember that a decent portion of your loan payment will go towards buying equity, so even though your cash-flow (Profit) might be light, your appreciation (profit) when you sell will be strong.
This exactly. But I'd also add that your appreciation can also be accessed through a cash out refinance if you don't want to sell the property.
@Matthew Olszak This makes a lot of sense. That makes me feel a lot better about getting the ball rolling. Just to be curious, my girlfriend and I are looking to make the move to Chicago but I've shyed away from even looking there and have searched more in my hometown of Fort Wayne. What is the market like for rentals in Chicago? Is this something to look into or is best off to look elsewhere?
Right now the Chicago market is very tight. It is very very difficult to find deals. But if you're creative and patient, they can be found.
In terms of moving to Chicago, I think that decision should be based more on if that's the preferred lifestyle of you and your gf. I personally love living in a big urban area and enjoying all of the attributes of it(walkability, mass transit, culture, diversity, incredible restaurant and nightlife options, architecture, pro sports, entertainment), but I realize that's not for everyone.
Roseville, CA · Member since 2016 · 15 posts · 9 votes
9y
I feel you. I know I see these guests on the show with 93 doors, maybe 39 properties and I'm like how do I get there quickly with figures like $300 in profit? My initial plan is to save a decent down payment to buy a duplex in California. While living in the property my rent will be very inexpensive and I will still be able to save a 2nd down over 2 years to do it again. When I move out, I plan to make about $800 or $400 per side. I'm pretty conservative with the numbers as well. I just hope we can scale it and figure out how to get more doors.
Good luck getting started!!!! I'd consider househacking as an option. :)
Queens, NY · Member since 2017 · 65 posts · 16 votes
9y
I wish I lived in Indiana. I'm in NYC and with my limited budget of 100k I can't touch NOTHING here. The cheapest properties here are starting at 300k and those are taxed at a premium. And talk about renter friendly state, if u ever need to evict a tenant in NY prepare to take a 3-6 month rent loss at a minimum!
I see those houses in Indiana for under 100k in B class neighborhoods and up and each time I'm ready to go and check one out it's already in "pending" status. There's absolutely no way for me to buy anything from here unless I'm relocating.
Investor · Jacksonville, FL · Member since 2017 · 27 posts · 13 votes
9y
@Kyle Wilkins Spend time with the rental calculators on BP. I would also listen to some of the past webinars that help you look at deals. Although $300 may not sound much it may actually be a good deal once you run all the numbers. Lastly get Brandon Turners book on buying rentals. It worth every penny. I'm starting out myself, and it has been a huge help. Good luck.
Real Estate Agent · Heber, UT · Member since 2016 · 56 posts · 46 votes
9y
Hi Kyle! It's exciting that you're looking into investing--my husband was about your age when we bought our first property. It was nervewracking, and it's been a bit of a ride, but it was definitely worth it!
I agree with what others have said; $300 isn't bad for a first deal. Our first property was a duplex; we house-hacked for awhile and then rented it out to students once we moved. It cashflows around $800/mo., which was definitely a big win for our first buy. However, some of the subsequent properties that we bought cashflow about $300 a month. To me, every dollar counts, and what's awesome is seeing that cashflow add up over time and then putting it toward new properties. With multiple properties, you should start to see that cashflow increase, assuming they're good investments.
The biggest piece of advice that I have is to look for a local mentor. My husband and I definitely would have been on the fence for months if we didn't have an experienced friend helping us through our first deal. Good luck to you--let me know if you have any questions!
Investor · Juneau, AK · Member since 2015 · 980 posts · 741 votes
9y
You are on the right track Kyle...
Buy and hold rentals are the classic "get rich slow" enterprise. Run the numbers and read all you can on the financial side and make sure the numbers work for you...
Also, keep in mind:
The rents can creep up over time
Your property generally appreciates over time
Your debt decreases (as the tenant pays off the mortgage)
And if you get a decent property and manage it well, you can keep costs in check.
So you see the slow motion magic formula at work--rents going up, property value going up and debt going down....
Maybe let's get in the DeLorean and time travel--set the dial for ten years ahead Doc! We find Kyle at 36 (still very young and healthy!).
And I don't know your exact numbers but let's say (hypothetically) we stop your first rental....
That ho hum first rental has seen some appreciation--maybe you notice a similar one down the street now selling for 135K (and let's say you bought for 98K way back in 2017)
Your monthly cash flow is now 500 a month as you have modestly increased the rents at each turn over or renewal but kept the building stable and cost effective.
Then you open your mortgage statement and realize you only owe 80K now (and keep in mind the current value above, 135K).
Not so bad now, especially if you look at your cash on cash returns. Zoom back to 2017 to buy in or jump forward to 2037 for even more excitement..
Wholesaler · Henrietta, NY · Member since 2016 · 58 posts · 27 votes
9y
Kyle - Glad to see that you're at least testing the waters. Couple thoughts from one newb to another...
1) Even if you're not ready to buy, keep crunching numbers and running deals in your head, on cocktail napkins, in spreadsheets & wherever else you can. Running 1,000 hypothetical deals will only help the situation when you're actually in a position to buy. You'll be more confident and have a much better grasp of what has value and what does not.
2) Most of the guys/gals with a buy and hold strategy are aiming to net $100/door or more. $300/door is nothing to scoff at. That's a car payment, or two, that you're able to "take off the books".
3) Don't underestimate the power of the house hack. My first deal was buying a SFR about 10 miles away from my home. Small place in a C+ area (but up-and-coming) that nets me $500/month at a purchase price of $72k. That extra $500/month was just what I needed to put some extra money away to purchase a house-hack duplex that I'm closing on in a month (which will give me 4 total units acquired over 2 years and the goal of living rent/mortgage free). Momentum is everything and as long as you're cash positive at the end of the month, it's a step in the right direction.
Good luck to you. Indy seems like a great area in that the barrier to entry is quite low... turn key properties for $50k give-or-take. Happy to chat more if you want to connect!
@Matthew Olszak This makes a lot of sense. That makes me feel a lot better about getting the ball rolling. Just to be curious, my girlfriend and I are looking to make the move to Chicago but I've shyed away from even looking there and have searched more in my hometown of Fort Wayne. What is the market like for rentals in Chicago? Is this something to look into or is best off to look elsewhere?
Solid rental market, but like @Jeff Burdick said, when it comes to a house hack for most people you've got to consider where you actually want to live. I can show you some great cash-flowing properties, but the neighborhoods might be like living in a foreign country to you. But, there are a lot of opportunities here where you can have the majority of your PITI paid by your other unit(s) while living in the property yourself. And keep in mind, most first-time homeowners move within 6 years, so if you fit the average you'll live nearly rent free for 6 years, and likely have a huge chunk of change to move to where you want afterward.
San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes
9y
I think you're really smart to think with your own brain. There are a lot of real estate supposed gurus who may not be dealing with reality.
So, with only $300 wiggle room per month is that worth it to you to be a landlord?
You'll have to decide that. Is your long-term investment plan to just have your rental cover your costs? This may still work out for you as far as write-offs on your tax return.
Only you will know what your goals are. If this rental meets your goals as far as paying off your investment for now, with maybe an actual "income" when you retire and the property is paid off - then great.
Personally, I think this is realistic and a good investment. I don't personally buy into any get rich quick schemes.
Investor · Shakopee, MN · Member since 2014 · 219 posts · 88 votes
9y
Buy something that cashflows in a growing market.
Keep living at home, or with roommate with super low rent. Save that money for your next downpayment along with the $300 per month.
Spend the next couple years looking for deals. Before you know it, you can refinance your first property and take cash out along with your savings from living at home and working full time, and presto... you can buy house number 2.
Go a couple more years, find a nice significant other who agrees with your mindset. Move in together into a cheap apartment (or both keep living at home). Save her paycheck, your paycheck and the two rental houses cash flow to build up money for the third. Buy the third. Mix in one or two rehabs that turn you a nice $20k or $40k or 80k profit along the way, and next thing you know you can buy a house at age 35 for cash. (I think Brandon Turner has books on how to buy with little cash).
Your biggest income starting out is still your paycheck. Don't fall into the trap of using most of it on your own over-sized home. At worst, you should buy your first house as a rehab that you live in, then eventually roll it into a rental down the road.
The house you live in should be the worst of the houses you own.
Chicago, IL · Member since 2017 · 231 posts · 124 votes
9y
@Kyle Wilkins I went to high school in Fort Wayne, college at IU in Bloomington, and moved to Chicago after graduation 3 years ago.
After saving for 3 years, I am actually closing on a 3 bedroom condo next Friday. I have 2 buddies renting the other rooms from me for $900/each, leaving just a couple hundred bucks left over for me to pay each month. I currently pay $1000/month in rent myself, so it's a huge savings.
My point is, if you're looking in Chicago, and especially at our age (I'm 25), you're pretty much forced to house-hack with Chicago prices. My brother lives in Indy and my dad lives in Fort Wayne, so I've actually been interested in scoping out rental properties in both areas once I spend the next year saving up again. I could put 20% down on a rental in Indiana, but definitely not in Chicago. Here, you need to live in your investment property for a couple years in order to qualify for a low down payment percentage. But it is a easy as ever to find renters here, that's for sure.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
@Kyle Wilkins if the numbers were better, someone would have snatched it up already. Also keep in mind that one furnace/AC unit could cost you thousands of dollars, so could erase your entire profit for a year! That is the nature of this business, not for the faint of heart. It is not a get rich quick scheme and it is not easy. It is, however, the best way for the average person to gain wealth in a fairly low risk way. I have houses that make more and less than $300 per month. The monthly cash flow is only one of many things you should be considering.