Rental Property Book Investing Math Doesn’t Make Sense

[Alan Crookham]

I am just getting into purchasing/rehabbing/renting properties. I own one small house in Panama outright that I have rented for years, so I have land lording experience, but not so much in investing and flipping.

Someone gave me the Rental Property Investing book by Brandon Turner, and am in the chapter on analyzing a property and the numbers don’t make sense to me. I know I’m missing something because people obviously make millions of dollars in real estate.

But here is simplified (and very rough) example from the book.

A property costs $100k to purchase and rehab. You can bring in $200 a month in cash flow after all expenses. You hold the property for five years, then sell for about $130k, but still have to spend $17k on expenses in the sale, plus pay off the loan, and all the other stuff, but hurray, you still made $13k on the deal! Also, you made about $17k from rent over five years.

That sounds good on paper, but don’t you have to go buy another house now, and you will have to use all that income on plus to rehab the new house, which puts you back to zero. You would have been better of just continuing to rent and make your $200 a month. I don’t understand what the actual profit is here.

Can someone please explain what I’m missing, or are these the actual margins to expect? How does anyone actually make real money doing this?

Thank you!