Investing in real estate rental properties is a dream many investors have, even if only to own their own home outright.
For those that wish to own rental properties, whether they be single family homes, office buildings, or land that tenants are welcome to build on, the process is often a slow one, starting with one home, renting it out, and working to pay down the mortgage as quickly as possible to fully capitalize on the money to be made.
Paying off debt and building a large base of equity is the key to establishing true wealth, and while the process can be slow, it slowly gets very fast.
Rental Properties: Before the Rich are Rich, They Acquire Assets
Assets are the key to wealth, but not just anything that can be listed as an asset, which is essentially any item that has value. When thinking of assets, think of income-producing property.
A $250 golf club is not an asset unless it’s helping Tiger Woods sink more putts from the fringe, and a car is not an asset in this sense unless it’s being used to create income, such as a taxi cab, limousine, or delivery van.
If it brings in money, or adds to one’s wealth, it falls into the asset category that will help investors grow their net worth.
Starting Small and Then Finishing Strong in Real Estate
There are some exceptions to investors starting small, such as those who have much guidance and a lot of money, allowing room for mistakes that someone investing with a middle class income cannot afford.
For the average investor, small, uncomplicated investments allow room for small, affordable mistakes, such as not having a 1,000 square foot home inspected again after repairs were supposedly done on the toilet. This mistake may cost some money, but it shouldn’t disrupt the entire event of growing serious wealth.
Over the course of time that it takes to pay down the mortgage on this home, many events will occur that will serve as a great education for a rental property owner, such as whether it’s worth it to allow small pets as a means of securing the non-refundable deposit and avoiding vacancies from shutting out a significant part of the market. After all, what does each vacant month cost compared to having carpets shampooed?
If an investor applies the rent to the mortgage in a strong rental market, such as a military town, and adds some money of his own to pay down the principle, it would not be hard to pay off the loan in 20 years.
Once this is done, it’s time to find another property.
Double Payments on a 30-Year Mortgage
Now that the first home is paid off, those looking to really become wealthy should buy a similar home in a similar neighborhood (in regards to rental properties).
Keep in mind that the renter of the new house will not be paying the mortgage alone. This time, both rents will be paying for one mortgage, resulting in the second home being paid off in under 10 years if there is a 15% vacancy rate.
When this process is repeated, the third home will be paid off in six years and the fourth in less than four.
At this point, the investments have accumulated over about 40 years. They can provide a comfortable retirement, but, also, they have formed a business that can be passed on, acquiring like properties to add to the holdings in just a few short years at a time.
This ample passive income can provide for some nice golden years. With the lessons that will be passed on to the heir of this fortune, a true empire can be established, and that is how the rich get richer with real estate.