Is this a good path to wealth?

Question

Alright guys - tell me, is this a good path? Or should I try to fast track it. Should I just try to acquire a property once a year (rent the old live in the new) and keep doing that for next 10 years and so on or should I try to buy multiple a year? I don’t see how I could even buy more properties than 1 a year because I’d have to put 20% down. That’s alot of money

J Clayton Durham · Answer

The biggest thing is to make sure you have positive cash flow, in any amount, on each property you acquire. Remember that you are placing a bet, and if conditions change that are part of what you bet on, e.g., area's biggest employer shuts down or moves, and as a result the tenant pool dries up, you could wind up going bust. When you are starting out, you may only have ONE silver bullet, e.g., the FHA 3.5% loan, so you MUST hit the target with your first bullet, or the werewolf will rip you limb from limb, e.g., lost investment, short sale, damaged credit rating. So the short version is, get your FIRST property, get settled, then start planning for your second and subsequent properties. You will find what works for you and the lifestyle you want to have within the first 2-3 houses, i.e, within the first 3-5 years. For an example of someone who bought a bunch of properties within the first few years, check out the 2nd edition of Mike Butler's "Landlording on Autopilot", I recommend the audio book version, to get an insider's viewpoint. In his case, he started while he was a cop, and began buying distressed properties at auction, with loans from family, cash advances on his credit cards, and taking out loans on other assets, e.g., his previously paid-off car. After a few properties, the administrative and handyman workload was too much, so he had to hire some admin help. His wife was still working her day job, so he relied on her for medical insurance. After a few more properties, he retired from the police force to do the buy-distressed and get them rentable approach full time. The property auction market, like Mike Butler used to get started, will vary quite a bit from region to region, and there will be competition for the better properties. With lots of the real estate "gurus", the way they made their money, their system, "used to" work, 10 or 20 years ago, but typically many details will need to be adapted to be successful in current market, lending, and legal environments.

Zeb B. · Answer

Start out planning to buy one per year and see how it goes. If you wind up with enough cash and time to do more than that some year then go for it. I'm not sure what your time horizon is, but I rented out my first house 10 years ago and have 8 now and am happy with my progress. In hindsight being a little more aggressive probably would have been more lucrative, but being too aggressive has it's own risks especially early in your career. If you buy one per year, in 10 years you will likely be in a pretty good financial position.

Mike D'Arrigo · Answer

@James Robert I'm a big believer that if you are going to do this, it's best to build a portfolio as quickly as possible without stretching yourself too thin. Make sure that you have plenty of reserves. Real estate wealth is built over time. The sooner you get started, the sooner you can begin creating wealth.

Dan Porter · Answer

I think buying one would be a terrific start. After you see how much work it is you can go from there depending on finances. I think as long as your getting some skin in the game you are ahead

James Robert · Answer

Definitely. I’m a realtor and I get 2 free personal deals a year where I take a full commision I can roll into a downpayment a year. So FHA I’m only paying .5% to acquire the house. So I could buy 1-2 a year but that’s a lot of moving. I was gonna do one house a year and buy something turn key - I don’t like doing the work while living in it. Is this a good strategy? I feel like one house a year is not enough

James Robert · Answer

Agreed. I own my first house now which I bought 7 months ago. I have enough money right now to get a new one and move into it. I just might wait a little longer to see what the market does when my 12 month mark hits then I can decide to sell this one or keep it

Dan Porter · Answer

It depends , if you have enough capital for multiple a year then as long as you can keep up with the maintenance and vacancies. But investing in one would be a great start! You can do 3.5% down with an FHA loan and live in it for two years to avoid capital gains. And then you can always re-adjust the plan as you go