First year and different strategy

[Steve Rutherford]

Looking for insight! This is my first year for Rental Real Estate investing. I want to buy and hold and rent out.

Ok so my thoughts! I saved up 100k cash. I would like to buy a 80-90k single family home and use the extra 10-20k from the 100k to fix up and take care of the extra expenses. I know I could finance 4-5 homes with 100k but debt to be honest scares me. I would like to keep the mortgage out of the equation.

So I then would rent it out for 900-1,000 a month and save an extra 2k a month from my job. 34-36k annually before expenses and taxes.

Once I save up another 100k repeat the process.

Each house I buy will snowball the money and shorten the time to save for a new house.

Eventually I’m hoping I can buy a house every year or two and quit my job in 10-15 years.

Let me have your honest opinion. I want to learn and see everyone’s ideas. Thank you all in advance!

[Ralph R.]

@Steve Rutherford. The strategy is ok but one of the advantage’s of real estate over other investments is the ability to leverage your investment funds. If your going to use your investment money like your describing it will earn way more invested in stocks or something else. Buy storage units or a campground. My partner buys multi family’s and pays cash or huge down payments. He typically makes 8-10 percent MINUS the time loss of money which is 2-3% annually. This reduces your gain to 5-7%. Multi family’s don’t appreciate like single family’s. If there’s value add that helps a little. I use leverage and manage the leverage. I make 18-25% on my money and sell or cash out refi when those returns start to drop. Say you invest 90k in a house (I’m leaving out appreciation for simplicity) and the rent is $1,000 a month. Let’s say expenses run 30% leaving you a net of $700 a month. It’s 128 months until you get your 90k back. It’s making you 9% interest Why don’t you just draw out 700 a month for 10years?? After all that’s what the tenant is doing. He’s living in your 90k investment and paying it back to you at a rate of 700 a month. It’s going to be 10 years before you get your original investment back. Then you start making a profit after that. The real profit is in the value add or in the appreciation of the property. Not in the cash flow. If the property is leveraged you only have $22,500 invested. The bank has the rest. Now you get $700 minus a $342 loan payment or $358 a month. That gives you a 19% return on your money. You get your $22,500 back in about 5 years. PLUS the tenant is also paying the loan down and you can get that money when you sell or re-finance. If your afraid of debt ( Ramsey failed at realestate) then look elsewhere to put your money. Your losing 50% of your gain by not using correct leverage. That being said you have to manage your leverage. I’m 66 so I want a lower amount of leverage. At a younger age I ran about 60-70% leverage. Today the market is high so I keep my leverage a little lower for that. When the market is low I would leverage higher. If you have 2 $100,000 houses one paid for and one with $75,000 of debt you own 62% of your assets. In a tough time you sell the one with a loan and own the remaining on free and clear. Where’s the risk in that? RR