I love long term real estate investing, it’s really all I think about. The funny thing is, I currently own only 1 rental property and it has already changed my life. I have other investments, 401k, roth IRA, my wife has a pension, and I have a brokerage account, but real estate is just the by far the best investment vehicle in my opinion. Here’s a few reason why.
1) I’m making a ridiculous return on investment.
How would you like to make a 30% return on your money? Well that’s my cashflow return on my single investment property! We purchased the home for $100,000 with about $20,000 down and around another $5,000 out of pocket for some minor updating. The all in monthly payment comes out to about $1,000 a month and rents for $1,700!
This property is self managed. I only rent to military tenants so I don’t have to worry about damages, and most of the appliances in the home are newer. So I only save $100 a month for capital expenditures and surprises. Vacancies are also a non-issue as I typically have 10 applications in the first week of listing the home. This leaves a $600 profit each month, or $7,200 a year which is just about $30% of my original $25,000 investment.
The bonus factor. Most real estate investors will tell you that you shouldn’t purchase a home banking on appreciation, instead treat it like a bonus. The reality is homes appreciate, sure the housing crash happened, but home prices came back up. Two years after purchasing the home, it appraised for $160,000! Not a bad bonus.
3) Getting my money back
If you’re not familiar with BRRRR it stands for (Buy, Renovate, Rent, Refinance, Repeat). Not too long after the property was rented I decided to do a refinance, and the property appraised high enough that I was able to pull the original $20,000 down payment out of the home equity. I’ll be using those funds to purchase my second rental property, hopefully sooner rather than later.
4) Mortgage paydown
This is like a savings account that someone else puts money in for you. I don’t even factor this into my return on investment, but in just 2 years my tenants have paid down about $3,000 of the loan’s principal. That’s not much to write home about, but it’s still pretty awesome knowing that one day this house will be paid off and I won’t have put a dime into making it happen.
5) Not everyone does it
My wife and I are the only ones in our entire family who own an investment property. We’re the only ones out of all our friends who own investment property. There’s something very cool about that, we took the path less traveled. Friends and family often ask us how it’s going, they’re always amazed when we tell them about it. “how are your tenants?”…. good I guess we haven’t heard from them in 6 months.
6) Tax advantages
We have a Rockstar of an accountant, I recommend you get one as well. The first year we owned the rental we collected $8,400 of cash flow minus a $600 oven we decided to replace. My accountant found $18,000 worth of losses! Now my wife and I both work and make enough from our W2 that we can’t apply that $18,000 to our W2 income, but it means the $8,400 we made from the rental was 100% tax free. You know when you get a bonus or a commission check at work, it feels like taxes are double? Well that’s because that bonus falls into the highest end of your tax bracket, normally that $8,400 would as well, that’s why it’s so amazing. You’d have to probably make $14,000 on the books to have the same net take home.
7) It’s pretty darn passive
Now it’s not 100% passive, there are a couple times a year I get a call from my tenants, usually for little things I can handle myself. I rent to young military couples who just haven’t learned how to do basic repairs like a leaking toilet bowl flap, or a loose hand rail on the steps. These are quick easy fixes for me. The property is 9 minutes door to door which also makes it easier.
Listing the property and meeting with interested tenants also takes a little work, along with filling out the needed documents for the county. Reality is, I probably spend an average of 10 hours a year on the property. Considering the amount of wealth its generating I could spend 100 hours on it and it would still be worth it.
8) I have control of my real estate
The thing I hate most about the stock market, is even if you’re right the market can still decide you’re wrong. You can do all the due diligence in the world, but if herd mentality takes over you could find yourself in big trouble. There’s also nothing you can do to a stock to improve it’s value. With real estate I can decide what areas I want to focus on, I can put extra work and money into it to make it more valuable. I just feel like it’s mine to control.
9) It’s extremely rewarding
My father in law is very successful and I respect the hell out of him. When I told him my plan with the property he had his doubts, normally I listen to him but I knew I was right. I ran all the numbers, and knew when it came to real estate I knew more than him. I can still remember when I was finished renovating the place brining my in laws over to show them and how impressed they were. Then when our first military tenants signed the lease for exactly what I was hoping to get in rent, my father in law thought I’d never be able to get my asking price. After the first year when everything went right, my father in law admitted he didn’t think it would work and that he was extremely impressed. You’re not going to get that kind of rewarding feeling by maxing out your 401k and it's just another reason why I love long term real estate investing.
10) Early retirement
About 4 years ago I realized my new goal in life needed to be early retirement. People work so hard to move up the corporate ladder which is great, but honestly what is the point? I think every human on this planet should be spending every day trying to come up with a way to retire early. Real estate is proven to be one of the best, most tried and true ways of making that happen.
Think about it, let’s say you’re 35 years old. You decide you want to retire in your mid 40s and you need $10,000 a month to live comfortably. Well, going off “the 4% rule” you’ll need $3 million dollars so you can live off 4% a year. The other option would be to simply purchase 1-2 rental properties a year for the next 10-11 years. So lets say after 11 years you own 14 properties and each one cashflows $500 a month, that’s $7,000 a month. Remember what I said above though, you are not going to be paying taxes on that $7,000 where the $10,000 you will be. Also, as the homes appreciate you could refinance them and pull out large lump sums of cash if you really wanted to. Or pay them off faster and receive a larger monthly payment without a mortgage. Buying 1 property a year isn’t terribly difficult, especially once you hit your 7th or 8th year, now your real estate income is essentially buying the next property for you anyway.
At the moment we’re going through the Covid-19 crazy housing boom. I’m confident the housing market will start to cool, until then finding a property is proving to be a challenge in my area. The ironic part, I was putting an offer in on a home in early March, then the president came on TV and admitted the virus was way worse then they thought, so I backed off from putting in an offer… man was that a mistake. The little $140,000 fixer upper I was looking at is probably worth $280,000 right now.
I can’t wait to get another property, I’d like to have a minimum of 5 within the next 3 years. I’m so envious of the people I see on Instagram who add like 14 properties to their portfolio a year. I’ll get there one day!