How are you able to get rich with rentals?

Question

Hey guys! I’m just starting out with RE investing and I just had a few questions.

1. How are people able to become millionaires through owning rentals? I understand how cash flow works but I just can’t understand how $100-$200 through cash flow that people are becoming millionaires. Does the wealth come once you pay off the house?

2. What benefits are there for owning rental properties?

3. Is 15 years or 30 years a better option for paying back your mortgage?

4. And lastly, do you guys prefer normal bank financing or hard money lenders? What’s the benefits of both?

Thank you guys so much for all the help and any advice would be greatly appreciated!!!

Nik Corbaxhi · Answer

@Brett Mason, your monthly payment would be higher on a 15 year compared to a 30 year. The principal to interest ratio would be higher, meaning more of your payment would go towards the principal.

Josue Vargas · Answer

@Brett Mason

You do realize you can't be millionaire in a short term.  Banks and lenders are millionaires.  For most people here, the fact you have 5 + properties each valued at $200,001.00 doesn't mean you are a millionaire.

I'm not a millionaire, I have worked hard keeping my W-2 high income, still struggling sometimes, but perseveration is the key.  Get your foot under the door, make a small deal, learn from it.  And mostly, this is nothing new.  There are lost of people out there with more experience than you can imagine.

There is no magical formula.  Figuring out REI in your area or whatever you are looking for investment is a key for success.  Take advices like a grain of salt. Not all areas are the same.

Brett Mason · Answer

@Nik Corbaxhi oh ok. Thank you so much for your help!

Joe Villeneuve · Answer

1 You don't buy rentals where you only  get $100/month in CF...you need at least $4-500

2 - Monthly income

3 - 30 year...and you let the tenant pay it back through the rent

4 - You can't carry Hard Money for rentals

Theresa Harris · Answer

You would still be making money while the mortgage is being paid down, but not as much.  One of the thing some people do is once there is a good amount of equity in the rental, they refinance and pull that money out.  They use that money to buy another home and repeat the process to increase their rental portfolio.  The homes won't cash flow as much due to the higher mortgage, but you're able to have more rentals which balances that.

As Joe said some areas you can buy places with higher cash flow than others.  It isn't all about the cash flow as often the ones where you can make more money on a monthly basis are more work as you have cheaper rents and more problematic tenants-obviously there are exceptions to that.

You need to figure out what you are comfortable with and what works best for you.  Some like the higher risk, higher reward and others would lose sleep over it.  Don't be afraid to try something and if it doesn't work, change direction.

Josue Vargas · Answer

I guess I just pointed out your first question.  This is my opinion of the other questions:

2. Benefits of owning rental properties:  Cash Flow and appreciation.  While others are paying your loans, if you do it correctly, you also benefit from cash flow (additional income you didn't have before owning a rental).  EXPERIENCE!  Your experience is something you can't buy or learn in a seminar.  Unique issues will arise, and each time, you will be more savvy in the business for any type of property.  Plus your next one will be easier and lenders will take you more seriously because you "have experience".  Also other investors or lets say, contractors, lenders, CPAs, Lawyers, Agents/Brokers, even tenants, will see you as someone they can do business with you.

3. A 100 years if available is a better option.

4. You will learn more about it on different forums. Its complicated for a sentence or three, but I will try my best, here it goes:  Its all depends your strategy and how much or how able are you t come up with short vs long term payments.  Hard money usually have very high interest rates and short life, more towards the flip house market or someone that doesn't have the down payment now for a deal but can come up with the $ in a relatively short time.  Financing (bank or lender) has its advantages for long term such as buy and hold, lower payments, lower interest rates.

Brett Mason · Answer

@Joe Villeneuve oh ok. I didnt know about not being able to use hard money for rentals. Thank you for the help Joe!

Nik Corbaxhi · Answer

Hopefully, by the time people slow down posting, you will not be more confused than you were before you asked your questions. I say this because the responses are not going to vary based on everyone's goals and financial situation. here is the short answers to your questions.

1. long term process over time. The goal is to acquire as many properties as you can and leverage the income from them to continue buying properties.

2. Ultimate benefit, financial independence. This comes with time and not over a short period of time. However, there are people that are in love with it and they would even pay to do it, if they had to. :)

3. Depends on what your goals are. many people benefit from the increased cashflow that comes with the 30 year mortgages, while others are focused on paying off the properties ASAP within 15 and then doing it in a phased approach.

4. Personally, I have been doing it with bank financing, however hard money lenders are great from what I hear.

Alexandre Marques dos Santos · Answer

@Brett Mason

When you scale, and use proceeds towards to new acquisitions, you improve outcome.  When prices goes up, u can increase leverage with no disbursement.  After some time you get inventory paid and get rich.  The risk is when prices collapses.  Then being leveraged u have big problem.

Personally i believe 15 years to be best outcome.  Rates are lower, and you pay down quickly loan.  But that is because i dont like much leverage as majority does, like 80/20.  I am more a 50/50 guy as results in lower risk.  So i am focused in gaining equity in the house quickly ( i even have houses fully paid at mom).

You will see tons of 30 yrs votes.  That way the difference in installments are not of much difference.  But its ur option.

Last, bank gives lower rates.  But accessibility is more limited.  So its all about what can you get, vis a vis to what you need.

Brett Mason · Answer

@Josue Vargas thank you Josue! This was very helpful!

How are you able to get rich with rentals?

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