How do people make money renting a secondary house they bought? Say you bought it for $100,000; wouldn't the appropriate price to rent it be 1,000 a month? It could take anywhere from 12-20 years to get your money back (because there are maintenance costs and not guaranteed to be rented out continuously)...what am I missing here? Why do people buy and rent houses if the return on investment will take forever to profit, and even when you do start to profit it is only around 10,000 a year
With renting you don't make your money from the rents, you make your money from the capital appreciation.
Blah Blah Blah. wrote:
With renting you don't make your money from the rents, you make your money from the capital appreciation.
So in order for that appreciation to actually become a part of your spendable income you would need to liquidate the house by selling it at the higher value right? Sorry if these are dumb questions, I'm 17 and just trying to figure out how these things work
Small investments like this are more about the balance sheet than cash flow. You just hope to cover operating expenses and debt service with the rent revenue, then as you pay the mortgage down you have value in the property that you can cash out if you want. Any cashflow is just icing on top, and probably won't amount to much.
Interest rates on risk free cash investments have gone near zero. If one has a few hundred thousand dollars lying around, rental properties can be reasonable cash flow investments in the right markets. There are costs but there are also very considerable tax benefits (depreciation as well as out-of-pocket deductions) that go to the cash flow bottom line.
If you put a few hundred K into an investment account, you don't think "darn, it's going to take me X years to get my money back." Rather, you think of the account as a place to put your money instead of, say, under your mattress. It can be the same with rental real estate.
There is no guarantee of price appreciation for the real estate investment. The markets that offer good rental cash flow returns on investment because real estate prices have not appreciated the way they have in the "hot" markets may continue not to see those price escalations. But as long as you maintain the property, you have a pretty good idea that you have a stable cash flow investment that isn't going to vaporize the way a stock can.
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