Maybe I'm missing something, but I've never really thought of real estate as a wealth building tool.
Let's say you buy a rental property. You pay a $1500 mortgage on it every month (the whole PITI). Then you rent it out. Following the 9 months rent for 12 months mortgage rule of thumb, you set the monthly rent at $2000.
So far, you have a $500 cash flow every month (assuming 0% vacancy). Good. But if you are using rental properties as a means to location independence, you're going to want to travel the world and be gone for months at a time. What if something happens to the property? You need someone to manage the property for you.
Ok, then you hire a property manager. Let's say they charge 10% of your rent. That's $200 a month. Now you're running on cash flow of $300 per month.
What about fees and maintenance? Do you have the tenant pay those, or do you pay it yourself? As far as I can remember, as an apartment tenant, I don't pay for fees or maintenance. If something breaks, it's the apartment manager's responsibility. I assume that's the same for property landlords like yourself.
So let's say maintenance runs at $2400 a year (picked that number so it is easily dividable by 12 months). That's an average of $200 per month.
Now you're pulling in only $100 a month in cash flow.
If you want to be location independent with a cash flow of $2k a month without working at all, you'll need to buy 20 properties of similar value as the above example. This seems pretty unrealistic to me.
But I may be missing something, and I probably am, if there are lots of young guys riding on rental income now. Do they just expect to break even on rent & fees, hope the property appreciates in value, and then sell for a profit -- the profit being the real vehicle to location independence?
Let's say you buy a rental property. You pay a $1500 mortgage on it every month (the whole PITI). Then you rent it out. Following the 9 months rent for 12 months mortgage rule of thumb, you set the monthly rent at $2000.
So far, you have a $500 cash flow every month (assuming 0% vacancy). Good. But if you are using rental properties as a means to location independence, you're going to want to travel the world and be gone for months at a time. What if something happens to the property? You need someone to manage the property for you.
Ok, then you hire a property manager. Let's say they charge 10% of your rent. That's $200 a month. Now you're running on cash flow of $300 per month.
What about fees and maintenance? Do you have the tenant pay those, or do you pay it yourself? As far as I can remember, as an apartment tenant, I don't pay for fees or maintenance. If something breaks, it's the apartment manager's responsibility. I assume that's the same for property landlords like yourself.
So let's say maintenance runs at $2400 a year (picked that number so it is easily dividable by 12 months). That's an average of $200 per month.
Now you're pulling in only $100 a month in cash flow.
If you want to be location independent with a cash flow of $2k a month without working at all, you'll need to buy 20 properties of similar value as the above example. This seems pretty unrealistic to me.
But I may be missing something, and I probably am, if there are lots of young guys riding on rental income now. Do they just expect to break even on rent & fees, hope the property appreciates in value, and then sell for a profit -- the profit being the real vehicle to location independence?