20 Jan Why You Should Be A Landlord
As a Realtor, I’m often asked about how to get started in becoming a real estate investor. People watch HGTV or infomercials and read books about becoming a millionaire through real estate and they’re genuinely curious as to how it’s done.
And it’s true, one of the most traditional ways to build wealth is to do it through real estate. Whether it’s building equity in your own home, flipping houses in your area or collecting rental properties, you can begin to amass a lot of wealth through real estate.
Although buying an old, broken down home and restoring it to all it’s glory seems glamorous and extremely gratifying, the most traditional, and probably the most tested, tried and true method to build wealth is through rental properties.
Mark Twain once said, “buy land, they’re not making it anymore.”
But how do you hold on to it and begin making money from it? Well, you rent it out.
Generating money from rental properties is a numbers game. If you buy a home and your mortgage payment is $900 per month and you turn around and rent that same home to someone else for $1300 per month, then you’ll make $400 per month.
Maybe $400 per month doesn’t seem like all that much to you. But imagine if you had 3, 4, 5 or even 10 of these properties that generated $400 per month, each and every month.
$4,000 a month is a lot considering most of these houses would require little to no actual work on your part. That’s why you’ll hear the term passive income. Because it’s money that you’re not working all that hard to earn. You own the house and people pay you to live there.
The best part about these homes that you’re renting out is that other people are paying your mortgage and increasing your equity in the home. Equity is the difference between what the home is worth on the market and what you actually owe the bank.
As you make your mortgage payments over the years, the amount you owe the bank goes down. As property values increase over time, which historically they always do, your equity in that rental property will increase.
With rental properties, you have cash flow month after month and then if you ever get tired of renting it out, you can just sell the property. It’s very realistic to make $400 a month every month for ten years and then sell it for $100,000 of profit. Now imagine if you did that with 3, 4, 5, or even 10 of these properties.
It isn’t always perfect of course. Roofs need to be replaced. HVAC units break. In some states, property taxes are higher on investment properties. But even a lot of that stuff can be offset with a good accountant that knows what deductions to take advantage of.
Being a landlord and having rental properties takes patience and it’s the type of wealth you build over time. But if you stick to your plan and are willing to play the long game, it may be for you.