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
It’s profitable because home ownership is profitable, and home ownership is profitable because people who own houses vote.
I am surprised no is mentioning two huge benefits: A) write offs – tools, mileage, phone, office, Internet, etc (if you do your own work managing the property). B) depreciation— PURCHASE PRICE/ 27.5 years = approximately 6.2% gross income is subtracted from gross profit and that’s what you’re taxed on, not the full gross profit ( fellow Redditors, correct me if I’m wrong please)
I’m addition to others, You don’t rent them for what your mortgage payment is, you rent them for around 20 or more percent over to pay property taxes maintenance etc. It has to cash flow and once you own it outright things really start cooking.
You have to juggle multiple financial considerations when buying a house.
We own three houses, rent out the other two and break even on them. But we’re trying to build generational wealth. For us there is no income generated, but in 25 years when we’re retiring, we’ll have three paid off houses, two of which will be pure income to supplement our retirement.
When the wife and I are dead, our kids (and theirs) now have three houses generating pure income. They can buy a few more houses, rinse and repeat and my great great great grandkids now own a small housing empire.
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.
Residences aren’t a good investment. The rapid increase just shows how powerful the demand is. The land appreciates that much faster than the structure depreciates. In general, there was an enormous population shift in Western Countries by about a quarter of the population from rural areas to cities. The demand is to live in cities. So land in those cities is more valuable to more people who want to occupy it.
Looking at how the dollar has been losing value (they have been printing dollars and borrowing trillions) a property is an asset that will always be worth something. It is a physical asset. You can sell it or rent it out for cash. If the dollar collapses, you will still own the property and still be able to rent it out.
Buying stock is a gamble. Putting money in a bank gets very little interest, much lower than the rate of inflation so you are actually losing money in a bank.
1. Mortgage is forced savings. Most people do not have the discipline to rent and invest the difference
2. Leverage. You can put $50k down on a $500k house. If you buy stock, you’re not getting 10x leverage. When stock goes up 1% you make 1%. When the house goes up 1% you make 10%. It gets eaten somewhat by interest/taxes/maintenance/etc, but in favorable markets (not now lol) you can come out ahead.
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