What's the worst that can happen?

Question

Just go out and buy a house on a 30 year fixed rate loan.  Then rent it out for market rates.

Chances are that if you can absorb the cost of the occasional repair like a water heater through your regular income, in 15 years you're going to have a nice net worth gain over what you would have done if you didn't jump into real estate.

If it was much more dangerous than that, everyone would be losing their houses.

Opinions?

Dan D. · Answer

I think there are risks, but the biggest and most costly for the majority is not getting started in my opinion.

The second would be buying something outside of your means of income that was outside your price range.

Account Closed · Answer

There's always risk involved. If it were idiot proof then there would be a lot more millionaires out there. But you ask the right questions because to manage risk you have to know what they are.

Dan D. · Answer

Eric P.

So that would be bad.  It would cost an additional $5,000 that at that point would need to go onto credit cards to help absorb that hit.

For a first timer, that would be some awful luck to start off.

Dan D. · Answer

If you look at it, you might experience some lumps.

Could have some major expenses to start off, new furnace, long vacancy, but after you learned that lesson and make the repair, the furnace should be good for 20 years hopefully.

I'd say the next level of advice on the stock side would be "Go out and buy an index fund and hold it".  That might get you 8% annually non-inflation adjusted, but you don't have any leverage or cash flow on that investment.

Similar to investing in a house with no renter.

Andy Collins · Answer

saying "go out and buy a house" without qualifying all that goes into that selection, would be like saying go out and buy a stock, and someone picks a name they like out of the stock tables.

In any investment you must do your due diligence, what could  happen could include your letting your insurance laps, you get sued and end up in personal bankruptcy, or you have minimal coverage and the same thing happens.

I'm for real estate investing,which is why I do it,,but you can't just say buying any house in any situation with any skill set is good,, you must be prepared, do your due diligence and do a good job of screening tenants and managing the property

Doug Minton · Answer

Hmmmm! Why not mitigate your risk from the beginning.

1. Before you purchase the property, have the proper inspections done. This way at least you'd know where to allocate funds if needed.

2. Properly screen your tenants. Don't just put anybody into your property just to get a rent check. Make sure they don't have any judgments, they have a job for at least 2 years, they have decent credit, and if they have rented before, contact their former landlords. As a rule of thumb, don't just contact their current landlord. Contact the one prior to that one, since the current landlord may give a good reference just to get rid of a bad tenant.

3. Going forward, allocate at least 10% of the annual rent to a maintenance fund.

4. Have an exit strategy just in case you pick up a dud.

In my opinion, buying and holding is straight forward and easy to do. I've done wholesaling and hope to do a rehab next year, but after hanging out with investors, they buy and hold buys seem to have true long term wealth.

Happy investing and keep a positive attitude.

Jeremy Tillotson · Answer

@Dan D. unfortunately it is more likely to one just starting out, not knowing how to inspect properties or vet tenant apps. If it was that easy their wouldn't be any renters. So can your cashflow now pay off the credit card, and what happens if you have a furnace go out after that. You have to have cash reserves as a landlord because things happen.

Eric P. · Answer

What if you can't find a renter for 2 months, they move in and there's some major issues that cost you $2,000 then they don't pay and you have to evict them, you keep the security deposit but they destroyed the place.   They're broke so suing them is like trying to get blood from a stone.  You're out $5,000 inside of 3 months.  That's the first thing that comes to my mind.  Obviously you're gonna want to have backup cash and you can write off the losses.  But I imagine it's like any long term investment, if you hold it long enough it'll pay.