I always thought purchasing rental properties is a great form of passive income. However I'm doing some quick maths in my area and it doesn't add up. Someone please explain this to me
>typical single family home in my area goes for 700k >I'm looking at a home in a slightly worse area for 600k >I can afford a 25% down payment so need to borrow 450k >Mortgage payment comes in at around 2200/month not counting property taxes insurance or maintenance >homes in this area are renting for about 1800-2000/month
Essentially I just 'lost' 150k, and each month I'm losing an additional few hundred dollars.
So, what's the point??? I guess in 30 years I get a 'free' house but in the meantime I'm maintaining something that makes a negative profit. How does real estate make money unless you bought your property a decade ago right after the housing bubble crashed?
On topic stay out of real estate for another year or two.
Kevin Martinez
everyone keeps saying that but real estate has been the go-to investment for decades. Only the past few years it's gotten bad.
Nicholas Gray
>Mortgage this is your problem you fucking retard. real estate is great when you not poor.
Andrew Mitchell
no matter if you buy, rent or mortgage you never own property in the US. You might think you're not paying rent but (((property tax))) is basically the same thing either way fail to pay your rent and the real owners of real estate slap a fine on your ass, send you to jail, and take your "property" never invest in real estate never own a house don't play into the system
Nicholas Walker
OP listen to It's looking like the housing market is pretty overvalued at the moment, give it 2-3 years whenever it bottoms out and then you can real estate for considerably less. Also how do you define slightly worse?
Aiden Johnson
property has been rising in value so fast in some places that some people see such massive increases in home equity that they're home is making more money than they make at work.
people can rent out at a loss, betting on their property going up $100,000 every year. this is accelerated further by historically low interest rates.
with interest rates going up, home buyers today will end up holding worthless RE bags by 2020.
William Barnes
will this affect the RE market globally, even in Europe or just merica? As I don't wanna buy at the top of this
Isaac Jenkins
Congratulations, you are one of the lucky few who are smart enough to see the boomer real estate meme for what it is, a fucking scam engineered to keep the real estate bubble inflated long enough for them to exit scam all the millennials when they have to sell or reverse mortgage all of their houses because they were too stupid to save for retirement.
>So, what's the point??? I guess in 30 years I get a 'free' house
Bingo. In a fair market in a typical housing market (where people don't move often) then you should see rents slightly below what a mortgage goes for.
To see why, if there's a delta between rents and mortgage payments, then the market should raise/lower them to match: if you can make money via rents then owning a house gets more valuable, and prices go up. If you can live more cheaply than by renting, then house prices will naturally decline.
The premium for a mortgage is because of the fact that you're actually owning something in the end.
> How does real estate make money unless you bought your property a decade ago
You make money either by a) speculating that the property will become more valuable b) Investing in rental properties for shorter duration tenants. (think: college areas, corporate apartments, vacation rentals, hotels)
Notice that in (b) there is a premium on the rent because of the ability for a renter to leave on a minute's notice. In these cases, rent can stay well above a mortgage price.
At a high price, single family home renters are actually more likely to just buy it outright so demand for rents are depressed. If you want to invest in single family homes, do it for cheap areas where tenants are less likely to be able to buy outright.
>The premium for a mortgage is because of the fact that you're actually owning something in the end. As a further illustration, note that an "interest-only" loan has payments that are much less than a standard mortgage, which makes sense since you're not actually buying ("paying down") any of the principal.
If you're looking to invest in a house as an investment property (and not to live in) then you may consider one of those.
Levi Clark
Im 50 years old and let me give you my boomer advice for what its worth. Congrats on looking toward real estate! It IS the way to long term wealth. Not easy, but worth it! I got into real estate in the mid-90s. No money down type stuff that failed pretty bad. Bankruptcy in 2001. Lost everything pretty much but gained infinite knowledge and (even better) many contacts. Lucky to have a wife who stood by me and we never gave up. From 2002 thru 2007 we saw quite a boom..did some rehabs but bided our time and saved all our cash and credit and knew the crash would eventually come, and it did. Bought many properties in 2008-10 on the fucking dirt cheap (bought a 6 unit apt house for 56k cash! and now we get 5600/mo every month clear from it!) Wife and I own a total of 15 properties and we clear roughly 25k per month. ITS DOABLE JUST BE PATIENT. Just bide your time til the stock market downturns and when it does, the real estate will follow on the cheap. save your cash and find a real estate mentor in your area. Good luck frens.
That makes a lot of sense to me, particularly the last few lines. I was thinking to avoid worse cheaper areas because I'd rather not have melanin-enriched gentlemen putting holes in my sheetrock. Another idea was to buy some coastal property in a vacation spot and airbnb it out. This way I could use the property myself to vacation when there are no tenants.
I've never heard of those. How do those work if I'm not paying any of the principal? I will never actually own it, so the idea is that someday I 'sell' it?
You are living the dream. Sadly I don't quite have enough cash on hand to be able to buy multiple properties when the time comes because I feel the crash coming soon. Combined with the fact that I am relatively young (26) I feel like banks will not lend to me in the middle of a crisis. I'd have to buy nearly for cash. At most I could get maybe a single 2 or 3 family home to rent, but that's about it.
David Rivera
As other have mentioned, you're missing an important part of real estate investment. Equity. The rental income income covering the mortgage payment partially goes to the interest, which the bank takes and your principle, which generate equity on the property. When you sell the property, that equity will be converted to cash.
Also property value appreciation is another source of equity. Even if you don't want to sell the property, you can get access to cash through home equity line of credit.
Gavin Myers
that image is the case for almost the entire world. That includes China. That's why crypto is the future. There's going to be a massive global hyperinflation coupled with wealth confiscation.
Christian Sanchez
real estate - big bubble
Nolan White
>wealth confiscation How? Bail ins? I feel like to combat all that they will raise taxes to something ridiculous like 50 or 60%. I know about the order FDR put in place about surrendering gold. Can they actually truly ban crypto? What will normies do?
Better to hold no money and only assets. Harder to confiscate a house than force a bail-in and confiscate your bank account.
Joseph Rodriguez
there's a lot of money out there in the hands of relatively few ultra rich groups. I know of one large european group spending billions on US urban multifamily real estate. not working with it directly just hear about it from time to time. I guess they were recently buying at a 4%-4.5% cap rate. Like you said that pays next to nothing or even could come out negative after maintenance/taxes/vacancy, etc. I brought this up asking how do they expect to make money. Apparently it's capital appreciation.
Zachary Lewis
>How? Income taxes. Hyperinflation means everyone suddenly has lots of nominal income. If prices of everything rise 10x in a year and you sell your asset for 10x, you made zero real profit, but for taxes you made 9x. Which creates a wealth tax on the level of 20%-30% annually.
Zachary Price
>half down payment half loan >Lease property for at least 150% of mortgage payment >Wait five years >Sell property, pay off loan >1039 to bigger property >+Profit
Lucas Hughes
>half down payment requires huge initial capital, you have 300k in your savings account? >Lease property for at least 150% of mortgage payment rents are lower than mortgage, with property tax would probably be equal to the smaller payment >sell property, pay off loan Why would i sell after 5 years? What would allow me to go for a bigger property?
Liam Barnes
Multi unit property are generally more efficient, in terms of property tax, insurance cost, and maintenance cost. One family houses are usually the worst.
Ideally you want to sell your house at the height of a bubble, and buy at the bottom, so trading 1 property for 2-3+. But over a long period of time, real estate always trend upward, much like the stock market. There are also quite a few tax benefits to holding real estate.
John Morris
2+2-1 makes 3 quick maffs
Eli Mitchell
0 or near 0 interest rates have led to this price spike. Think about how poor the average American, Leaf, or Euro is. And then think what happens when the (((free money))) gets turned off. This shit is going to correct hard. Don't buy at the top. Those interest rates are the only thing keeping prices high.
Sitting on a ton of cash? Save it for the foreclosure auctions.
