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Updated about 1 year ago on . Most recent reply
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New to Real Estate investing... trying to devise my strategy for entering market
Hi new BiggerPockets friends!
I am in a good cash position and looking to enter into real estate.
I'm trying to wrap my head around one key thing... For simple math, if I purchased a $100k property with 20% down and was able to get rent to cover the mortgage, interest, taxes, maintenance and property management (essentially zero cash flow)... held for 30yrs with no appreciation... then wouldn't I essentially hold $100k equity in the property in 30yrs on an initial investment of $20k? I know there's a million other things to factor in (vacancy, etc.), but fundamentally, isn't this a case where renters essentially pay my mortgage and I end up owning the asset?
Said another way, if a rental property doesn't appreciate or cash flow, but does enough to cover the expenses tied to the property, isn't the fundamental benefit of a long term strategy like this simply owning an asset renters paid for?
Take it easy on me :-). Thanks!
Most Popular Reply
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- Lender
- Los Angeles, CA
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Hi Erik,
You are definitely right in that the mortgage pay down is a significant advantage to buying real estate (you essentially own a house that your renters paid for after 30 years!). I would say, when looking at a span of 30 years though, the main benefit is usually appreciation.
Not to mention, there are 3 other benefits to owning real estate!
1. Cash Flow
2. Appreciation
3. Tax Benefits
4. Leverage
However, you should consider there are risks to account for:
- Your property may not cash flow as expected so you could be in negative cash flow
- Things break and you may not have enough cash to cover it
- Your money is tied to a relatively illiquid asset
- Stress and work (a lot more work than you think to buying your first real estate!)
- Vacancies, squatters, uncooperative rentors