Thread: Living Strictly On Property Income

Hello,

Anyone here lives strictly on income property from multiple property ownership? Always thought it would be cool to own a few locations, and just live off the rent money. Maybe have low mortgages on them, and pocket the remaining rent. Friends dad owned a piece of land, and Bank of America just leased it from him for 25 years, at 30,000/month. He quit his job, and he is depositing 30K ever month with a smile on his face. Obviously that's commercial real estate. Love to hear some stories. Do you guys prefer to buy and flip, or buy and rent?

Originally Posted by 123456

Do you guys prefer to buy and flip, or buy and rent?

If possible, do both.

I'm only a college student but I know a tad about this.. commercial real estate can be a perfect way to work up that $$$ but if you choose an even slightly questionable location, you could be screwed and without a tenant for months or years...Even busy places might not have occupants for months at a time simply because companies can't afford the rent at such a desirable place. Not saying people shouldn't invest in commercial real estate, but I believe it would be a little safer not to venture into that as your first investment property.

Apartments tend to do well because everyone needs a home and if you have a desirable location, you never need to worry about renting out units.

I was thinking of pre-purchasing 1 condo that'll be built in 2013. I can get a pre-purchase incentive price around 90K. My mortgage will be roughly 700/month, and maybe I can rent the house at 1,500/month. However, it seems like a very slow investment. Taking out my mortgage, and probably utilities that'll be included in the rent, I'd be only probably pocket 400-500/month, nice but nothing to go crazy about. Obviously it seems like quantity is the name of the game with renting. What do you think about those? Anyone pre-purchase these units, and flip them when the unit is actually done and ready for delivery. Do they have an initial value appreciation. Maybe buy one for 90, sell at 120, is there such a thing?

I'm not sure about wherever you're located but...if they are not set up like projects / in a good location USUALLY there will be good initial value appreciation.

I know there was a condo complex around where I live that has been there since the 70s and because of its setting and constant upgrading, it gets hot every 4-5 years. But, probably because of the '08 'recession', it went downhill in terms of value. I believe they're now worth what people purchased them for back around '07...I'm sure it'll pick up again but you never know.

If only I was lucky enough to out right own a piece of land with the capability of producing $30k a month.... then yea, I'd be a happy camper.

Originally Posted by 123456

I was thinking of pre-purchasing 1 condo that'll be built in 2013. I can get a pre-purchase incentive price around 90K. My mortgage will be roughly 700/month, and maybe I can rent the house at 1,500/month. However, it seems like a very slow investment. Taking out my mortgage, and probably utilities that'll be included in the rent, I'd be only probably pocket 400-500/month, nice but nothing to go crazy about. Obviously it seems like quantity is the name of the game with renting. What do you think about those? Anyone pre-purchase these units, and flip them when the unit is actually done and ready for delivery. Do they have an initial value appreciation. Maybe buy one for 90, sell at 120, is there such a thing?

It's a good idea in theory, but be careful with new construction renting...especially in the condo market. Many developers put in the deed that you can't rent it out for X years, or at all. They do this for a few reasons generally: 1. they don't want flippers. They want the whole piece of the pie. 2. high renter occupancy generally means the value of the properties decrease, as renters just don't take care of property like owners do. 3. banks look at owner occupancy rates for condo associations when making loans. For instance, here in CT, anything over 40% non-owner occupied, most banks won't touch (for your average buyer). FHA won't touch them either. So selling condos to those buyers becomes impossible.

Another thing to consider is that single condos often don't provide adequate cash flow to make sense. The math sounds good at first, $1500 rent and $700 mortgage, but add in insurance, taxes, condo or HOA fees, and other misc. costs and it the margin tightens.

The flip side is if you can get it with no strings attached, and the price is right, go for it.

Good luck.

Originally Posted by 123456

However, it seems like a very slow investment.


I'd be only probably pocket 400-500/month,

That's the problem. Don't pocket that money. Throw it and whatever else you have at the mortgage and pay it off as soon as you can. After that, do it all over again, maybe buying two condos the second time around. If any of them appreciate, sell them and buy a nicer/larger one, and so on.

It's obviously not that simple, but that's an easy set of base rules to follow before considering the myriad other important things involved.

This is a smart concept and great topic to discuss.

It really depends on your goals - is it quick cash, monthly cash flow, or long term value?

Quick cash: The obvious answer is to buy a home under market value, fix it up, and sell it. In this market, however, I feel it's a risky endeavor. It's still a buyer's market and it's difficult to compete with endless short sales and REO's. To me, this risk isn't worth the reward - not in today's market.

Cash flow: I prefer buying a property that generates the most cash possible. If you don't need the immediate profit that a flip would generate, buy a rental property and enjoy the benefits of seeing a monthly paycheck.

Long term value: Buy in an area that has a strong likelyhood to appreciate in value -- even if your rental income is just enough to cover the mortgage and other property expenses. While you won't see a strong immediate cash return, long term you'll be owning a property worth way more than the price you purchased it for.

As for myself, I currently own several rental properties and make enough to cover my living expenses. In theory, I'm sure somewhere this is enough to retire and live a modest lifestyle, but certainly not in Los Angeles. I also work 60-80 hours per week in the real estate industry so I can earn enough to buy more rental property and generate more income.

While flipping can be appropriate in some circumstances, I recommend buying and holding for long-term cash flow. I buy properties that have the best best cash on cash return potential. Buying for appreciation is a close second consideration, only to give me the best likelyhood of pulling out more equity to buy more rental properties.

At the moment, I believe some of the hardest hit areas are the ones to rebound the quickest - and tend to lend themselves to higher returns. Investors tend to flock to areas where housing prices can be bought at 25% of their peak value and the increased activity lends itself to quick market corrections and appreciation. While these areas are riskier markets, they can be cash cows if done properly.

Throw it and whatever else you have at the mortgage and pay it off as soon as you can.

Depends. If the extra money is going to be spent on booze and girls, then it's a no brainer -- pay off the mortgage quicker. However, assuming you're re-investing the income, why pay off the mortgage faster? The interest is a tax write off. By keeping a lower and longer mortgage, you'll gain a higher cash on cash return so you have more money to reinvest at a higher return.

As for the condo topic, I agree completely with Sinjen. Condominiums typically don't make the best investments. I prefer multi-family buildings - they tend to be the least risky and often offer much better returns than single family homes.

Graham

Do you need licensing to purchase multiple properties? I know the licensing is for selling, but say you decide to cash out and sell them is it ok without licensing?

Great read here, love to hear different perspectives.