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All we see on TV is people making tens of thousands of dollars in what seems to be a week. Flipping houses can be very lucrative, but it is also risky and lots of hard work. Accumulating rental properties is not as glamorous, but it can build passive income for life. “It is better to make a slow dime than a quick nickel” is a saying that has stuck with me for years. In a world where everything seems to be instantaneous it is common for people to want to get rich RIGHT NOW.
Now that I have started investing in rental properties it is clear to me that I may not see the rewards right now, but ten years down the road I will be very glad I bought rental properties. People who own real estate CAN make a lot of passive income, but that does not come until you get multiple properties in your portfolio. A lot of real estate investors that buy and hold their investment properties BUILD WEALTH, not necessarily make a lot of cash upfront. This is something that may not be as glamorous as the quick flip that we see on TV, but if enough real estate is accumulated one’s future is sure to be a lot more abundant. If you started in your 20’s and bought five investment properties, by the time you are in your 50’s you would own 5 properties free and clear. Keep in mind, if you were renting those properties for 30 years someone else was paying off the loans for you.
Buying real estate is a proven way to create more wealth. Many well-known investors talk about the benefits of owning real estate: tax benefits, building passive income streams, and asset appreciation all with one investment. My strategy is simple, try to accumulate as many properties that will rent out for more than what the expenses are each month. This concept is not hard to grasp, the hard part is being able to take the risk of buying the property. A certain level of risk tolerance is needed to be any type of investor whether you are investing in stocks, a start-up business, or real estate. For some people, the idea of putting yourself hundreds of thousands of dollars in debt keeps them on the sidelines of the investing game.
Whether the property is one unit or 100 units, the same principle applies to this strategy. As long as the property brings in more cash on a monthly basis than the expenses of owning the property it is a good deal. Granted, the more units a property has, the larger the numbers will be for revenue and expenses.
Two examples of buying real estate and owning the property for multiple decades:
Example 1: If a property is in a fast appreciating neighborhood but only cash flows $100 per month it still might be an awesome deal. Why? Because as long as the expenses are covered each month and money is not being lost, AND the property is “silently” appreciating while being owned, when the owner goes to sell, it will be a great deal. Since the owner of the property was not losing money on a monthly basis, and when they sold it, it appreciated at a higher rate the other areas, they made a solid investment.
Example 2: A typical duplex for the Portland, OR Area can range anywhere from $350,000 to $900,000 in value, and market rents can range anywhere from $850/month to $4500/month. Now let’s say a duplex comes on the market in an area where a two bedroom, two bathroom unit typically rents for $1500/ month. Staying in the same hypothetical area, a duplex with the two bedroom, two bathroom sells for $400,000. If an investor is able to buy a duplex with two bedroom, two bathroom units for $350,000 in the same area, and still charge $1500/month in rent this investor would have a good cash flowing deal as long as it is rented out. Both of these strategies encompass the “buy and hold” idea that is usually not going to make a person rich quickly, but will build passive income and create more wealth in the future.
Trent J. Werner
Licensed Oregon Real Estate Broker
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