Current Events > Why do people say renting out real estate makes you rich? It doesnt.

(+) Yeah! (+)

You just end up having a mortgage debt ($1M+ for most landlords) and charge your tenants a little above double what the monthly mortgage is and you'll end up with maybe a couple grand in your pocket which most of it gets eaten up via taxes. So probably about less than $30K net annually. You also need to use that money to fix anything that's broken or to deal with tenants unwilling to pay... sounds like a nightmare really.

How does that make you rich?

renting out real estate makes you rich

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It is one way of becoming rich. It's a relatively safe way of obtaining leverage since banks will happily give you a mortgage and interest rates are pretty low even now. The plan is to rent out and make your tenants pay your mortgages for you plus extra. It gets tricky when there are bad tenants who can do some seriously damage. Either way, you get thousands of dollars a month and at the end of the mortgage you have property that you could likely sell for more than what you paid to buy it in the first place.

You charge rent based on what your costs are. It'd have to be something out of the ordinary (freak accident, intentional sabotage by tenant, unlucky coincidences, etc) for your repairs to destroy your earnings.
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the overhead and hassles really don't seem worth it unless you have the capital to hire a property manager, in which case you were already rich

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1337toothbrush posted...

It is one way of becoming rich. It's a relatively safe way of obtaining leverage since banks will happily give you a mortgage and interest rates are pretty low even now. The plan is to rent out and make your tenants pay your mortgages for you plus extra. It gets tricky when there are bad tenants who can do some seriously damage. Either way, you get thousands of dollars a month and at the end of the mortgage you have property that you could likely sell for more than what you paid to buy it in the first place.

You charge rent based on what your costs are. It'd have to be something out of the ordinary (freak accident, intentional sabotage by tenant, unlucky coincidences, etc) for your repairs to destroy your earnings.

You still have a million dollar mortgage debt. Unless you're a multi millionaire renting out several properties while working a full time job that pays over 6 figures and have other income streams, then yes I can see that. But if you're just gonna buy a real estate property thinking you'll get rich that way, you're wrong.

You're making money AND once the tenant has kindly paid the mortgage for you then you have an asset at the end of it that you can choose to sell for more money or continue to rent out for indefinite income (which you could use to fund ANOTHER rental property).

Given how low interest rates are, this is a very simple method to make a steady income provided it's in an area with property demand.

I'm too lazy to manage properties and would rather put my money into more liquid investments, but I can recognize that it's certainly a path toward wealth.
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Buying and selling real estate can make you rich, depending on how the housing market is going. Before the market crash in 08, my parents bought property in st. petersburg florida on the water. The value of the house literally doubled in four years.

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Buying real estate is just a way to hold on to your wealth. Its probably not going to make you rich if you arent already.

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21WIVES_CHILL posted...

You just end up having a mortgage debt ($1M+ for most landlords) and charge your tenants a little above double what the monthly mortgage is and you'll end up with maybe a couple grand in your pocket which most of it gets eaten up via taxes. So probably about less than $30K net annually. You also need to use that money to fix anything that's broken or to deal with tenants unwilling to pay... sounds like a nightmare really.

How does that make you rich?

You can use that $30K over the years to get a mortgage on a second house that you can rent out which gets you another $30K...

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My buddy flips houses, making $100K or so after selling the house.

My goal is to get land and build a 20+ unit apartment complex on it, which will be possible before I'm 40, if I get a business loan and continue investing my money the next 7 years. That should give me the 20% down that I'd want to pull it off. Just imagine $800 - $900 x 20 a month lol. It's a risk, but one I'm willing to take.

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Garioshi posted...

You can use that $30K over the years to get a mortgage on a second house that you can rent out which gets you another $30K...

And accruing even more debt.

21WIVES_CHILL posted...

And accruing even more debt.

If you think that way... yeah, you definitely arent going to go far in any money making venture. I put myself into debt to run multiple bread routes, but it'll all be gone in 4 - 5 years, and I'll be sitting at $180K - $200K a year. When I first started I was only making $60K a year.

You need to take calculated risks, and do a lot of research. My buddy started off renting, but it wasn't for him, so he ended up flipping houses since he went out and learned the skills to do so.

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21WIVES_CHILL posted...

And accruing even more debt.

Debt, in and of itself is not a bad thing. There is a such thing as good debt and bad debt. Most people have "bad" debt though. More specifically, debt on depreciating assets that don't help generate income. If your debt is paying for itself (presumably an apartment complex would generate enough to pay for itself if it's a good investment) then this would be considered "good". I highly suggest looking more into how debt is used to fund business (if you're operating an apartment complex, then you're operating a business). Go look at the financials for nearly any public company. You'll see that the vast majority of businesses are at least partially funded by debt because ultimately it's a cheaper way to do business compared to using your own equity. Personal finance "experts" like Dave Ramsey and Suze Orman aren't going to tell you this though and just cram into your head that all debt is bad which is not necessarily the case.

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kinetika_ posted...

If you think that way... yeah, you definitely arent going to go far in any money making venture. I put myself into debt to run multiple bread routes, but it'll all be gone in 4 - 5 years, and I'll be sitting at $180K - $200K a year. When I first started I was only making $60K a year.

You need to take calculated risks, and do a lot of research. My buddy started off renting, but it wasn't for him, so he ended up flipping houses since he went out and learned the skills to do so.

Any recommended books for getting into the rental game?

I'm far of from having the money to seriously try it, but I want to get some basic education so I can think about it as a potential avenue for money in my life (even if I never do it).

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Jabodie posted...

Any recommended books for getting into the rental game?

I'm far of from having the money to seriously try it, but I want to get some basic education so I can think about it as a potential avenue for money in my life (even if I never do it).

Multi-Family Millions by David Lindahl
Crushing It In Apartments and Commercial Real Estate by Brian Murray

I recommend both of these because they give lots of valuable insight and they both have some competing ideas about what to do with your properties long term. Neither is "right" or "wrong" but it's good to see both side of the coin.

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brandunh11 posted...

Multi-Family Millions by David Lindahl
Crushing It In Apartments and Commercial Real Estate by Brian Murray

I recommend both of these because they give lots of valuable insight and they both have some competing ideas about what to do with your properties long term. Neither is "right" or "wrong" but it's good to see both side of the coin.

Thank you. It's hard to sort through what's basically going to tell you nothing and what's so detailed that the specifics probably won't even apply by the time I have any real money.

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I'm looking to be mortgage free by the end of this year. I also rent my basement currently. I don't plan to rent it out after. I'm gonna look into buying a second house and renting it out. Then when it's doubled in value or close to it I might sell to earn a profit close to 6 figures.

My current house has almost doubled in value since I got it 5 years ago. I might also look into getting a house built then selling. Either way this isn't a crazy rich idea unless I work on the house myself to sell it. After taxes you may a small profit but nothing that will get you rich. More like close or at upper middle class. Basically that's what I want. Plus I also invest a little.

Getting a new house built here is probably $400-500K for something decent then sell it for $600K. I'm looking into all of this once my mortgage is cleared up.

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I'm going into the storage unit business. Hardly any maintenance needed.

If you get a decent house maintenance isn't much. Get tenants to sign if they damage things they are held responsible. Buy decent used appliances if the other ones break down. Not like you need to do major stuff right away like new shingles or redo the entire kitchen. Once you're ready to sell the place then redo a bunch of stuff.

Also where I live I can get tenants to cut the grass and shovel snow or I charge extra and it's a business write off.

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Most private landlords around here do the bare minimum or don't fix anything at all.

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It depends on where you invest. Places like Texas, southeast and the midwest are cheaper than the northeast and the west coast.

In my area you could by a decent fixer upper for 30-50k and flip it or rent it out, property taxes aren't high either.

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The money isn't made via rent. The money is made via capital gains on the land/home. The idea is you buy three houses instead of one, rent two out, have the rent cover the mortgage, then when they're paid off you can sell them for 10x what you paid for them 20 years earlier and retire early/rich.

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TreyFlowers posted...

The money isn't made via rent. The money is made via capital gains on the land/home. The idea is you buy three houses instead of one, rent two out, have the rent cover the mortgage, then when they're paid off you can sell them for 10x what you paid for them 20 years earlier and retire early/rich.

Pretty much and don't quit your full time job. I plan on selling my first mortgage free house in another 5 years from now at most and it should be close to triple what I paid. Also might do real estate agent part time. Also if I get into YouTube vids that's another extra income to make a 20 min video.

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