Buy & Hold

[Account Closed]

Greetings! I am new to the field of real estate investment and currently in the process of gather intelligence and information on different niches and strategies to pursue. However, I had a question arise in regard to the buy & hold strategy. When the loan on a property is getting paid down, does the tenant directly pay down the loan/mortgage or is it included in the monthly rent and thus subtracted from the investors cash flow? Unfortunately, I have no better way to state this. Thank you in advance!   

[Garth Wilson]

Hey Slava,

Seems you had the building block questions answered. However something about your question seems to oversimplify the process. So I want to add a few things.

1. You are buying the property. You will be responsible for everything. You are responsible for the tenant and the lender. Big responsibilities but big chance for the upside.

2. The tenant is looking for a place to live (not to make you wealthy).

3. You will not get a massive rent increase unless:

i/ A tenant who is paying below market rate moves out.

ii/ You make significant improvements to the property.

iii/ Demand for rentals in your area goes through the roof. (Luck and skill)

I don't think it's possible to 'negotiate' rents higher so you can pay your lender. Some areas are rent controlled, some states limit the amount you are able to increase rent year-over-year. Increasing rents too fast can 'push' renters out and then you have dark months and expenses which can take years to make up.

So what I'm saying is don't go into a deal feeling like you can renegotiate the circumstances with the tenant. The tenant and the lender will never meet. They both expect different things from you. You will take the tenants money and give it to the lender. You get to keep the difference, which IMHO should be no less than $200.