Is that the joker of Rich dad Poor Dad? He should be put behind bars.
I dont know how youre coming up with that assumption. The cash on cash return on residential properties are very good… I have three properties all financed with 20-25% down, returns on equity are between 15-25%. That doesnt include principal paydown or tax deductions!
Also you can deduct any repairs and such which wouldn’t be deductible if it were a primary residence. Not to mention that depending on the ratio of your payments to income, there is a chance that your properties will show a loss for tax purposes due to the depreciation charge.
If I were to move out of my current house I’d consider keeping it as a rental property if I didn’t need to sell it for the down payment on the new property.
samb007:
Can you share any more details? For instance, what kind of properties are these? Who are your tenants (i.e. college students, families, drunken hobos?) What is your rent/purchase price? Are you considering appreciation? Any more specific numbers?
Thanks.
Yea sure. Properties are in philadelphia, two are 3bd row homes and the other is a condo apt. The tenants are either students (i have one prop where I went to college) and the other two props are for young professionals, ages 24-28 or so… Im 28 so I dont really want to be renting to someone older than me.
The way I personally calculate what I am making on the properties is by calculating something like an ROE which takes the equity put down (downpayment, plus closing costs etc), and my return is rents minus costs plus tax deductions. All three of my props give me ROEs of 19-27%, this also assumes that rents are static and the equity base is static as well.
I dont anticipate any appreciation in the properties, just to be conservative.
Does the ROE include the present value of future depreciation recapture? Or do you plan on doing exchanges to avoid that / calculate the ROE exlcuding depreciation?
Good question. No I dont include it as part of the ROE, eventually it will be taxed assuming I exit my investment at cost.
I did a search and this thread is the closest to what i’m looking for. How does one get into running a portfolio of commercial properties? I used to work for a BSD big 4 partner who owned a bunch of delis, shops and restaurants and was making it rain. He pocketed the profits each year and just checked in with the property every few months to make sure things were still running, pay for new equipment etc. I know I can invest in this indirectly through REITs or a property manager, but I would rather invest directly in commercial property, and keep all the money along with the associated risks.
I think the small time real estate game is a loser when you factor in the cost of your time.
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If a person is handy and finds the right deal, a single property can be a nice little income stream, but I largely agree it is a headache for most people who can’t build a stable of properties that generate enough cash flow to hire someone to take care of the problems.
I’m almost certainly going to end up with 1 rental property shortly, because I got a very good deal on my primary residence and it’s almost paid off. The rental rates in my neighborhood run $1200-$1500 per month, and with what we’ll be putting down on the new place, I’d rather keep the house and roll half to two thirds of that revenue into my new payment. If things work out, my wife and I would like to add a property every 3 to 5 years, with the goal of ultimately owning 8-10 properties.
We’ve looked at several 4 and 6 unit buildings that are currently out of our price range, but the crude model I built suggested there was quite a bit of cash to be made there. My recently retired father is very handy, sitting on a pretty good pile of money and driving my mother crazy. I’ve tried getting him to get in on some of these deals, but he seems much more content spending all his free time drinking at their lake home.
As an unintentional landlord of a single residential property, I can confirm that it’s not worth the headaches. That being said, I wouldn’t mind having a portfolio of 6 or 7 smaller, true investment properties a bit closer to my current home. I’m not sure if commercial properties would be better or worse.
If you’re temporarily relocating, it may be a viable option.
If you can work with a trusted agent to rent it out while you’re gone, you can offset your mortgage and fees with rent. But actually turning a decent profit might be a different story.
I think that unless you’re prepared to be a landlord as your full-time job, it wouldn’t be worth the hassle.
In order to have a house, you presumably have to buy the house first, which means you have to pay principal, interest, insurance, etc. You also have to pay for all the repairs on the house (broken dishwasher, flooded toilet). You also have to ensure that the regular maintenance is done (mowing, changing air filter, pest control). Then, on top of all this, you’ll have to pay a management company to manage all the headaches for you. All of this will certainly cut into an already thin margin.
I suppose it could be done if you bought houses during a recession, then were able to sell them at higher prices later (or rent them at higher prices later). However, I think this is easier said than done.
I made a model to forecast owning a property. Best case scenario you grind out a little money each money, worst cast you end up covering extra costs in random months.The money to be made from rental properties is from the equity. You’re not making that much if any money off it directly each month.
Are those condos in Florida for under 100K worth it? I was thinking of getting a few and renting them out 11 months of the year but something tells me there’s a reason they are under 100k.
^ there’s too much oversupply. There’s a reason they’re cheap. Plus condo fees, insurance and all that BS in Florida. Also I believe non-residents aren’t treated equally with regard to property taxes.
I lived in FL and my family is finally getting rid of property there after YEARS of trying to sell it.
Yea, real estate is more a “store of value” rather than a cash cow. Even huge commercial real estate guys have limited cash flow.
I think you can still get discounted Disney tickets though as a property owner.
really? how many ‘huge commercial real estate guys’ do you know? This discussion between all you non-real estate zips is comical. LMAO.