Every week someone asks me about real estate investing and buying rental houses. Real estate investing can be simple, easy, and it can make you wealthy. What follows is a simple business plan for you to become a landlord and let your tenants make you wealthy.
Speaking of money; you will need 10% to 30% down to buy houses. You can get that by partnering with a money person on each deal, getting the seller to carry a second for part of the down payment, using your various savings or buying houses with seller financing with 10% down. If you have good credit, any good mortgage broker can help you finance ten rent houses.
You want to buy; Move in ready, 3-bedroom traditional houses or duplexes, with 2-car garages that are in good school districts. Here are the requirements you need a property to meet before you consider buying it.
- That you can afford the down payment.
- The monthly rent the house brings in must cover the mortgage payments, taxes, insurance and an allowance of 8% (of the rent amount) for vacancy and repairs with $200 left over every month as positive cash flow.
- That you can buy the house for 10% less than the market price.
- That the home has 3-bedrooms, a 2-car garage, and good schools.
- That you finance the purchase with a 20-year loan term, no prepayment penalty.
That’s it, any house in any area, in any price range that meets those requirements. Thousands of dwellings will meet those requirements. Any real estate agent should be able to find them for you.
If the house you are considering meets these 5-conditions, buy it. You want to buy a minimum of 8-houses. If you accumulate 10-20 houses your retirement would be spectacular.
As you noticed I did not mention the interest rate, the size of the home, getting a super good deal, or a specific location. Just, the five criteria items that I listed. All the other things about a house might make one house vs. another a better deal or more profitable, but, in the end the number of homes you buy is more important.
Your rental homes will make you money from the following:
- When you buy the house at 10% less than the appraised value.
- Your $200 monthly positive cash flow
- Rent increases every year increases cash flow
- Inflation as your house appreciates in value you get welathier.
- Depreciation (paper tax loss) gives you a tax savings against your current income
- Mortgage pay down of the debt with the tenants rent money.
Assuming an average purchase price of $150,000 per house. Each house should make you $89,000 to $100,000 in cash and equity over ten years. Now multiply by the number of homes. Ten houses would give you a net worth of between $1 million and $1.5 million plus monthly income between $4,200 and $5,000.
Buy 2-houses a year for five years, then 1- house for five years and then start selling them after 15 years, carrying the note on 20 to 25-year mortgages for the buyers at 110% of appraised value. (they will pay the extra 10% to get seller financing)
Don’t want to manage the houses? Then use a professional property management company for 8% of rents. Let them deal with all the issues.
The average single-family home real estate investor owns eight properties.
There it is, a simple plan to get wealthy by letting your renters make you rich. You won’t need any other investment plan; you can spend all the money you make from your job and still end up wealthy. What a deal and only one person in 500 will do it.
Jim Glasgow 2018