Investing in Rental Real Estate
If you have been following my blog post up until this time, you might not know that I am a big advocate of owning rental real estate. Perhaps my reservation in introducing this topic was due to the fact that I know that investing in real estate could and often involves a little bit more upfront capital (average $10,000 or more) more so than other types of investments I have mentioned like those in the stock market. However, one of the core elements to my portfolio of investments is rental real estate, but not due to market appreciation speculation, instead for the cash flow.
Early Yearning
I had long been interested in investing in real estate and had bought and read several books on the subject, but the problem with books in some regards is they say the same thing no matter how many times you read them and often don't answer all the questions that give you pause in taking action. There could be a lot of money at stake and you don't want a lack of education to result in the potential loss of that investment.
I had been on the road to improving my overall finances during 2006 - 2011 and was getting out of the last bit of consumer debt which I had on a car loan, for a car which I still own today, and I knew around the beginning of 2011 I would have some freed up money and I was determining would I invest it in the stock market or real estate. I started listening to podcast and what do you know, I happened upon a real estate investing club right in Houston called Lifestyles Unlimited that would put me on path to actually purchasing my first rental real estate property.
I remember to this day being in mechanic shop getting a sensor fixed and calling them immediately as I heard from podcast they were where I lived. I signed up for their initiation seminar and was sold largely because they said they would essentially hold my hand through to the end of the process. I could ask any questions to a rep which had already themselves went through the process of buying rental real estate at any step along the way. This step by step education allowed me to get over hump that was long holding me back.
The Opportunity Though Unfortunate
Unfortunately, as you might be aware, 2011 and few years after that was bad time for some homeowners which loss their homes, and as an investor, you don't wish ill on others but this posed a tremendous opportunity for us to step in and fill a void. It would be in this year that I would purchase 2 rental properties for roughly $75,000 each. Next to getting the education needed to making this step, this was the best investment I ever made up to that point in my life and these investments continue to pay dividends for me till this day as you will see shortly.
I would later go on to rent those two properties to great long term tenants and was making well over $400 in positive cash flow on each at the time due to the low price at which I purchased them and the going rents at the time. My cash flow has since gone down a little, but mainly due to the rising cost of insurance and property taxes and my choosing less turnover over market rents. In addition, I took tax free "cash out" refinance on each to pull some equity out of the properties with the intent to purchase more rental properties. However, due to the glut of properties and the fierce competition that picked up, I was unable to purchase another one since 2011.
Here I stand today, and those $70,000 properties are now each worth $160,000 or so. I am currently in the process of refinancing one, or possible both, for again the purpose to take some of the equity out of the house and use as seed money into the purchase of another rental property. As you might imagine, the house prices are a lot more now then they were in 2010 - 2014 time frame, but there is still an opportunity to buy real estate at a cost that will produce positive cash flow.
I would later go on to rent those two properties to great long term tenants and was making well over $400 in positive cash flow on each at the time due to the low price at which I purchased them and the going rents at the time. My cash flow has since gone down a little, but mainly due to the rising cost of insurance and property taxes and my choosing less turnover over market rents. In addition, I took tax free "cash out" refinance on each to pull some equity out of the properties with the intent to purchase more rental properties. However, due to the glut of properties and the fierce competition that picked up, I was unable to purchase another one since 2011.
Here I stand today, and those $70,000 properties are now each worth $160,000 or so. I am currently in the process of refinancing one, or possible both, for again the purpose to take some of the equity out of the house and use as seed money into the purchase of another rental property. As you might imagine, the house prices are a lot more now then they were in 2010 - 2014 time frame, but there is still an opportunity to buy real estate at a cost that will produce positive cash flow.
In Closing
If purchased right, rental real estate can be an investment that keeps on giving for years to come even when you have long since recouped your initial investment. The cash flow it can produce, along with potential market appreciation can also allow for the purchase of further properties down the line. Buying and holding these type properties will continue to produce passive income to work towards helping to supplement our income in retirement.
This is intended to be a non-consecutive series of 7 other post on this topic.
Next on deck are:
This is intended to be a non-consecutive series of 7 other post on this topic.
Next on deck are:
- Evaluating Properties - Part II
- Financing - Part III
- Tenant Screening/Move In Process - Part IV
- Property Management - Part V
- Cash Out Refinance Potential - Part VI
- Move Out Process/Make Ready - Part VII
- Single Family to Multi-Family Progression - Part VII
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