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Updated about 1 year ago on . Most recent reply

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Erik Koenig
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New to Real Estate investing... trying to devise my strategy for entering market

Erik Koenig
Posted

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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Ko Kashiwagi
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Lender
  • Los Angeles, CA
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811
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Ko Kashiwagi
#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Lender
  • Los Angeles, CA
Replied

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
  • Ko Kashiwagi
  • 310-848-9776
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