Rental Properties – Persistence is Profitable

Real estate money-making ideas and programs are often pitched to eager viewers on television and through radio as “get rich” opportunities, but the fact is there is no “quick” in get rich. Rental properties are a great means of building wealth, but patience, persistence, and excellent interpersonal skills are all necessary to make it happen.

I am 24 years old and for two years now have been in the process of building my financial freedom through owning rental properties. I currently own two single-family homes, one duplex, and a four-unit building in a University town of in Ohio. With my bank account nearly diminished from investing in properties, I have come to learn that the programs on T.V. that preach the “get rich quick” by buying rental properties is simply wrong; a big lie.

With that said, they can make you rich, just not quick and not easy. As my properties are currently netting me around $10,000.00 a year and building equity on top of that, I thought I would share a few of the keys to financial success by owning rental properties.
First, open a bank account separate from your personal one and use it strictly for your rental business (investments). Secondly, if you don’t have enough money on your own to get started, find a partner that is willing to go in on it with you. Third, make sure you inspect the property thoroughly before buying it. Furnaces, water heaters, roofs, and plumbing are the biggest concerns. Lastly, make sure that you fill out a net-income sheet listing all of the projected expenses for the property (vacancy factor @ 5% monthly rent, maintenance @ 10%, property manager if you desire one, monthly and yard work etc) and projected income (monthly rent, laundry fees, etc). After that is filled out, you subtract the expenses from the monthly income and the result is the amount that you can afford to finance.

For example, if you have $200.00 in projected expenses every month and you have $550.00 in projected income per month; the result would be $350.00. This means that you can afford to borrow money from the bank and take on a monthly mortgage of $350.00 and still break even. My rule of thumb is if you can get a property and break even the first year; buy it! The next time you rent it out, simply raise the rent $25-$50/month and now you are making $300-$600/year profit. Plus, you are building equity in the home. Once you get enough equity built, you then refinance the property and take the money and use it for a down-payment on another rental.

The above paragraph makes it clear. There is tons of money to be made in rental properties, but it takes time. Often the biggest reason people don’t invest in rental property is because they don’t have enough money to buy the first property. If you can get past that hurdle, you are good to go. Personally, my properties are doing great, and I credit the success to three very important factors:

1.) I buy only properties that are currently rented. Some investors are against this, but it ensures me that I will not have a vacant property for at least a few months (often longer). This helps me build cash up and ensures me that I will not be buying a property and instantly getting hit with a monthly mortgage coming from my own money.

2.) I buy all properties within one town, and that town is a huge university town. The tenant turnover is often higher, but you never get dead-beat people who don’t pay their rent because they have either wealthy parent supporting them in school, student loans that cover their housing, or professors who have money but don’t buy because they often travel from school to school teaching.

3.) I have built great credit, and great credit means I call my mortgage broker and say “I’m buying another property” and he gets me a loan approved within days. I had no credit until I bought my first rental, and within months I had a score of 740.
With that said, I suggest that if you are considering going into the rental property business, do it! Just be careful and realize that it’s not as easy as the T.V. gurus make it look. Also, always leave enough excess cash in your bank account to cover rent checks because they often are received after your monthly mortgage is due. In addition, have enough cash to cover a few months of rent in case you get a vacancy (if you planned correctly, you should have already figured in the 5% vacancy factor, so this shouldn’t be a problem).