The best advice comes when rental investors share secrets.
The best sources for rental investors sharing their secrets come from real estate industry sites. This blog shares secrets written by rental investors from Quora and Forbes. Quora invites rental investment experts from around the world to answer questions posed by viewers. On September 14, 2018, a viewer asked Quora,
“Did you make fortune in rental property investing?”
Here are the best answers: An investor from San Francisco replied: “Yes. I’m 37 years old and started investing in rental property when I was 26. I currently have 7 rentals and they bring in ~$322k/year, covering the entire costs for their mortgages, insurances, and property taxes. The rents also subsequently pay for the mortgage and property tax of the home where I reside with my family. After paying for the above, the properties are cash flowing an additional over $100k/ year. If the loans were fully paid-off, they would cash flow about $300k/ year in today’s dollar after paying for property taxes and insurances, so I expect that this amount will rise proportionately as rents do with time.”
[Lesson Learned: The rental income pays for all costs of the rentals plus the mortgage and property tax for the investor’s primary residence. In addition to bringing comfortable monthly income.] Another reply from Los Angeles wrote: “Bought a fixer in 2014 for $1.24M. A similar fixer just sold last week two blocks away for $1.88M.”
[Lesson Learned: Rental fixers pay off within 4 years in L.A.] A reply from Kansas revealed: “My monthly gross from my rentals will be $50,000 next month bringing me a net of $16,000. All properties with the exception of 2 will be paid off in 8 years where and my net will jump up to $42,000 when I turn 57. To me, that’s a decent early retirement.”
[Lesson Learned: Even Kansas rental investments can earn net $16,000 per month. Early retirement if rentals paid off within 8 years.] Another reply from Cleveland stated: “I’m investing in rental property to let my money work for me. I’m absolutely satisfied with the return I’m getting and am very pleased with the stability with which this cash flows in. Most of my houses were bought cheap out of foreclosure auctions, often with repair backlog and room for extension. All older purchases have increased in value considerably since then. If I were to sell them now, it would indeed be a fantastic return.”
[Lesson Learned: Buying cheap at foreclosure auctions brings “fantastic” returns.] A simpler reply from Hawaii advises: “You can two factors in Rental Real Estate. 1) Leveraging with other people’s money that’s a powerful effect, and rents increase with inflation. 2) Just make sure the numbers work and you have a positive cash flow or at least break even when you purchase a rental.”
[Lesson Learned: Leveraging and number crunching works for a rental investor in Hawaii.]
Not all Rosy: An answer from Washington claimed: Yes about four Million…but lost it all in 2007…when Banks stopped lending, had cash flow issues…over 25 years, your life changes, neighborhoods and markets change, three months of missed payments is all you need to get foreclosed on…The Lesson is: Be careful of Debt and Property Taxes. They can Do you in if your real estate does not enable you to pay it back in 7–8 years, forget about it…especially your principal residence, as for rental income, the tax-deductibility of interest makes it tempting to keep increasing debt, buying more, but it will catch up with you, so beware.
[Lesson Learned: Beware of market fluctuations. Don’t over leverage no matter how tempting. Pay your property taxes. ROI within 8 years.] Finally, from New York, the answer suggests: “Of course, you can make good earning through rentals property or investment. But everything wants a well-managed strategy. So, before going anywhere, make a fair plan that describes your goals, objective,s and solutions for future results. Rental property investment is a really good idea to gain awesome profits.”
[Lesson Learned: Establish your goals and objectives. Prepare a well-managed strategy.]
Summary of Lessons Learned when Rental Investors Share Secrets
What did we learn when rental investors share secrets? Rental investors from different states made the following suggestions:
- Cash-flow pays all expenses and more! Make sure the rentals pay for all associated expenses such as a mortgage, property tax, insurance, and maintenance. Also, ensure that enough cash flow exists afterward to make you happy with the passive income.
- Pay off the mortgage within 8 years.
- Auctions and foreclosures provide opportunities to buy fixer-uppers cheap, especially those with room for expansion.
- Leverage with other people’s money. But, don’t overdo it.
- Be prepared for market downturns. Keep a surplus to pay for the debt and property taxes during a market decline.
- Do not get carried away with increasing debt. Buying too many properties can increase your debt to a level that can’t be paid off if the economy slips.
- Create a Managing Strategy to meet your goals, objectives, and solutions for future results. Hiring a professional property management company experienced with rental properties can meet those goals and provide solutions when problems arise.
Forbes Offers Five Tips when a Rental Investor Shares Secrets
- Thorough Due Diligence including the economic and physical conditions of the property. Older buildings and homes often require a careful understanding of the zoning codes. Faulty plumbing and/or wiring, weak foundations, or mold behind the walls require fixing. How much will the cost of the repairs be and in what time frame?
- Research Local Rental Market to determine a fair price. What are the prevailing rental rates?
- Understand Your Taxes includes determining your federal, state, and local tax obligations. What deductions can reduce your taxes? Figure out the property taxes and the California supplemental taxes after purchase.
- Who Manages Rental Properties? Do you have the interest, time, and expertise to manage the rentals yourself? How much will hiring a property management company cost?
- Be Prepared to Act Fast as real estate markets quickly fluctuate. If you see a property you like how fast can you make an offer? Are your finances strong to make a quick purchase? If the local real estate market gets hot, do you want to sell before it cools down?
Rental investors share secrets. The most important include:
- Do your homework on the property, taxes, and local rental rates.
- Buying cheap fixers at auctions with room to expand make good investments.
- Don’t over-leverage.
- Sufficient rental income to pay all costs plus a comfortable profit.
- Pay off the debts within 8 years.
- Create a marketing strategy to fulfill your goals and objectives.
- Know when to sell.
- Hire a rentals property management company if you don’t have the time, interest, or knowledge to self-manage them.
Steven Rich, MBA – Guest Blogger
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