I can’t really wrap my head around it, you can have a tenant in there that maybe covers the mortgage, but it’s not really a good investment if you’re not getting a return?
Even if you use 500k to buy a property cash, wouldn’t that money be better off in the market?
In: Economics
One, you’re having somebody else pay off the loan on an asset you own in the end. Buy a $500k rental with $100k down and tenants pay off the $400k mortgage for you.
But not only do they pay off the loan, the value also appreciates. So 30 years down the road, it’s a $1.5 or 2m building, not $500k. Again, you’d spent $100k to buy it, and now it’s yours and worth $2m.
But you could also borrow against the value to snowball your assets. Say it’s worth $600k a few years after you buy, and you borrow $100k in equity from it to put down on a second building. Now you’re on your way to owning 2 buildings.
Or you sell and take that $200k to buy a $1m building and it’s worth $3 or 4m down the road.
And all that’s on top of whatever monthly rental cash flow you make. Even if break even early on, you can make more as you raise rents over time.
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