Re: Buy and Hold-Is it really worth doing? - Posted by Sean
Posted by Sean on April 03, 2006 at 15:37:47:
Where I live, a 50k house is not a hard find at all… I have a few that I got and are into sub 20k and rent for 500 a month plus utilities.
Now don’t get the wrong idea most sub 20 houses here are dumps… but there are a few isolated pockets where you can get a nice house that is in a safe area for 20 or 30 retail, but you have to know where to look. If you are willing to deal with low end tenants and neighborhoods you can pick up houses like that all day long… but your management won’t be 10-20 hours a year per property.
A 3 bedroom in good condition market value rent in all but the worst of areas is at least $600+.
Its not glamourous, but buy and holding is where real wealth is built. Flipping gives you a nice big check, but you gotta keep finding more properties to do that with.
I operate in the Pittsburgh PA region.
As to the 10-20 hours of management… really why would you need more than that on average per property per year? Unless you have tenants that just like to complain, or your properties are not in good shape.
Your main investment of time is trying to fill it when its vacant… once its filled, most contact will be a phone call here or there, and your handyman or plumber or whatever will be the one actually doing any work if needed… So, take the phone call, hear what the issue is, then call appropriate person and have them contact the tenant and set up appointment to fix the issue… get the bill in the mail and cut a check.
Also, if they are rent to owners, even less management.
Right now we are in the upper teens in terms of properties we have done and been doing it on the side for about 4 years now. We have all single families with the exception of 1 duplex.
You always have the option of flipping a house for some a big chunk if you need it, but when you can give yourself a $1800-$2500 a year raise buy just buying a property… why flip if your end goal is to build wealth??
Just do what I said originally 1 time a year, buy 1 house a year and hold it… and do that for 30 years… use your profits to pay off later buys and maybe scale back to 20 when you retire to lesson your load… with zero appreciation, you get 1/5 Million in cash from selling 10 of them… Retain a free and clear portfolio worth 1 Million, and have monthly incomes of 10k a month with a $500 a month average profit… and with 10-20 hours a year per property worked… your total work load for the year is 200-400 hours… or basically 5 to 10 man weeks a year to make 120k cashflow. And you just put the 1/2 Mill cash into bonds… making 9 or 10% and you get another 50k a year without even being creative or risky and you are looking at 170k a year in income.
The key to building long term anything is taking a LONG term approach. If you think in terms of crockpots vs microwaves you nearly always win… When you are thinking short term you will almost always make less than if you are thinking long term… no matter what you are trying to do.
Don’t get me wrong, I flip properties too, they are great for an infusion of cash when you need it… but flipping is a J.O.B. It involves putting tons of miles on your car, spending full days taking calls, looking at properties, paying for marketing to keep calls coming in… etc etc etc… You can make good money at it, but its still a J.O.B.
I want to be eventually sitting on a beach with my toes in the sand, and having lovely women bring me drinks all day long… and know that while I’m sitting there I’m still making more money than I’m spending.
Now, go back and assume a 4% inflation rate (rents going up with inflation, remember, mortgages are fixed payments… so inflation won’t affect them) and a 2-3% appreciation rate on the properties you own… and you wind up even better over the years…
I don’t chase appreciation… force it with rehabs, yes, but I don’t chase it… no need to.