Rentals vs flipping
Some investors think all they need to do is buy a house and rent it out. They think all they must do is hire a property management service and sit back and watch the money roll in.
Let’s take a closer look.
Staying consistent with the previous examples, let’s say an investor bought a $112,500 house, using $10,000 down payment.
[A $101,250 home loan balance with an average interest rate of 6.0% paid over a 15 year term will have a monthly payment of $854. In total, the loan will cost $153,793 with $52,543 in interest.]
The rental income would be $1,000 a month.
$50 water - stays with house.
$100 property management
Every month you are losing money!
Even if you received $1,429 monthly rental, which you will not, you still earned nothing, but you are exposed to risk and renters destroying your property.
If you need to evict, you will have months of lost rent, legal fees and expense of repairs to prepare for new tenant.
Every time you get a new tenant the preparation and repair costs eat up your profits.
If you paid cash for the rental property,
you will have tied up $112,500.
Your monthly cost will be $575.
That leaves a net of $425.
$112,500 divided by $425 = 264
Break-even is 264 months
22 YEARS to break even!
Property Redemption Services
makes finding the right project easy.
PRS has a list of pre-screened properties in which to invest.
You may buy the property in full or joint venture with others.
The team of tradesmen to perform the repairs and renovations is already in place.
Remember – "It’s not how hard you work that counts, it’s how smart you work."
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Let’s back up.
Let’s say you don’t have $100,000 to invest in ten properties.
How do you get to that point?
Starting with $10,000, using leverage, at the end of year one you earn $12,100 + your original $10,000.
You now have $22,100.
Year Two - You invest in two projects.
$12,100 x 2 = $24,200 + your original $22,100, totaling $46,300.
Year Three - You invest in four projects.
$12,100 x 4 = $48,400 + your original $46,300, totaling $94,700.
Starting with $10,000, in three years you could escalate to investing in almost ten projects as reflected in the example above.
Year Four - You invest in nine projects. $12,100 x 9 = $108,900 + your original $94,700, totaling $203,600
If you borrowed $100,000 at 10% interest. You would pay $10,000 per year in interest.
$100,000 could enable you to invest $10,000 in ten projects.
If ten properties enabled you to earn,
$12,100 x 10 = $121,000,
does the $10,000 interest really matter?