same with farming. some barrier to entry.
I don't know anything about farming, but there is
some barrier to entry, but there are "ways".
Honestly I endorse that for anyone who enjoys the type of work it requires. It can be a great ROI if done smartly. I gave up on the slum lord dream a while back because I realized I’d rather trade the upside of rental income for the worry free ease of index funds.
I work probably an average of 1-2 hours per week on mine (mostly administrative/financial). My only source of income. Wasn't that way when I started and thought I needed to do it all myself. It was stressful at times back then. After a couple years, wised up. I do not run slums, FWIW.
nice work. there was a time this was what I wanted to do when I grew up.
I tell everyone to do it, nobody listens. I somewhat get it, sounds scary and clogged toilet-y, but doesn't have to be that way.
Post your step by step and I’ll consider it.
I will do my best tomorrow when I'm sober, but there is no only one path. The real magic is created by raising the property value.
I am interested in this as well. I've thought about using my current house as a rental if I ever move but honestly I hate doing most home improvement projects so I'll probably just sell it.
Ok, so I inadvertently drank way more than anticipated last night so I'll try to keep this somewhat brief and coherent. It'll probably not work out that way.
So first things first, you need knowledge. Start listening to podcasts, with the obvious choice for someone starting out is biggerpockets podcast. High ROI on your time for this one, particularly since you can listen while driving to work, or cooking, or whatever. Just listen to a few, and if it excites you, then you know. If not, that's ok, might not be for you.
Why real estate? Three really big reasons why it's awesome IMO.
First, "equity gains". Over time it almost always appreciates if you buy property around people. If for no other reason that inflation. It hedges against it, and decent chance it will exceed it, maybe by a lot. There are dips in the market, so we're talking about long term. Also, you're renting it out. Someone else is paying down the loan. So between the two, your equity and net worth are growing every month
over the long term.
Second, IMO you should always buy something that is positive cash flowing. Meaning, you're making a little money each month after ALL expenses. That means after random expenses and expected expenses. Sounds scary, but it's not. If anyone wants to know more about analyzing a house or multi-family I can help, but won't dive deep here. So, you're making some money each month and your principle is growing. What else could there be?
Tax benefits. You likely won't pay taxes on the cashflow for decades....if ever. You can depreciate your property each year, on paper, to likely off set your income from the property. So if you want to quit your job and make 100k, you probably only need to have 70k income from real estate to maintain your lifestyle. Technically, you can only depreciate residential property for 27.5 years (weird number, I know...don't think anyone knows where that came from). You can accelerate that for bigger tax savings if needed but lets not get lost in the weeds. Just know there are big tax incentives. Also worth noting that tax law can change at any moment if you can get a large room of rich people who likely own property to agree on that.
Ok, so sounds good KITNfury, but how?
Capital. It matters. And most people either don't have it or run out of it. And this is a big topic that listening to podcasts will assist a lot it. You do GENERALLY need money to start. You at least need some reserves for unexpected expenses. But let's say you have $10k, no more. That's not much down payment, unfortunately. But what if you found a house that was completely paid off by the owner and they owner finance it to you? What does that mean? They simply play the bank. You might only have to put a little money down and make payments with interest to them. That's a way. Easy to find that? No, but they exist, deals like that happen more than you might think.
If you have some capital to play with, you can buy more traditionally, typically 20-25% down. But that does run out eventually, what do do? That's why I said before that you need to learn to raise property values. A popular single family term, coined but Brandon at Biggerpockets, is "BRRRR". It stands for "buy, rehab, rent, refinance, repeat". There are books on this, but the skinny is that you buy a house for a good price that needs work. You fix it and raise the value. You rent it out. You then get a new loan on the property with a new higher value that hopefully paid you back out and the old lender. Do it again and again. This can be applied to a single family home all the way to a 500 unit complex. The only difference is how their value is evaluated.
Math time!! To show plainly what I said above with nice round numbers. You buy a fixer for $50k. Being a fixer, you may or may not go to a traditional bank for it. Let's just assume you did, but IRL, just know there are other private lenders for this. Your down payment would be around 20% or $10k. You put $25k into it to get it all fixed up. Maybe you had that money or maybe it was lent. Doesn't matter, let's stay on topic. So all in, you and your lender have put $75k into it. But, now it's worth $100k. Banks will usually lend around 75% of the value of a property. What does this mean? You go to a new bank and refinance. They do the appraisal, and sure enough, it appraises for exactly $100k. So, they loan 75k on the property, which first goes to the previous lender to pay them out and what's left over goes to you which comes out to exactly your down payment. What are you left with? A free house that someone else will pay the mortgage for if you did it right. Take that money and do it again.
I have done that before with apartments too. So you're able to recycle your money over and over again. It just needs to positively cashflow so you don't lose the property to the bank. It's a longer process with apartments, but still do-able. The term you'll hear a lot is "value-add".
If I left anything out, please ask. I feel like most people stopped reading long before this sentence, so I'll stop here.
