The following is a guest post from Paul @ AffordAnything.org, she is a fantastic blogger, and fellow Yakezie Challenger.
Hi everyone – It’s Paula from AffordAnything.org here.
After I announced on my blog that I bought a triplex, several readers asked me to elaborate on my decision-making process. Why did I become a landlord? Isn’t that a hassle?
So I’d like to take a second to share my personal story: what led me to buy a rental property.
I lived in Australia for a year. One month before I left, a book by Aussie property investor Steve McKnight somehow fell into my lap.
The book, From 0 to 130 Properties in 3.5 Years, hammers one key point, which I’m paraphrasing:
Don’t buy real estate for capital appreciation. You can’t predict the future, and you don’t know if the value will go up or down.
Buy property only if it will put money in your pocket every month. Use that money to buy more property. Repeat until you can retire on the passive income.
In Australia, where there are tax incentives to own rental properties that cause you to LOSE money each month, this is a radical notion.
In the U.S., where those tax incentives don’t exist, this is a more common idea – but it’s still rare. Most real estate investors are chasing risky gains, not small but stable returns.
Steve’s book inspired me to chase the small-but-stable route.
FINDING AN OPPORTUNITY
I’d love to be able to tell you that I spent months scouring the classifieds for the perfect rental opportunity. I did not.
Finding the triplex was as simple as waking up, getting dressed, and stepping outside of my front door. That’s when I noticed that the house across the street was for sale.
I know the neighborhood well – after all, I live there – so I ventured online to look at the listing.
The numbers were in black and white:
- Unit 1 – Rents for $X per month
- Unit 2 – Rents for $Y per month
- Unit 3 – Rents for $Z per month
The listing also noted the annual property tax and included a spreadsheet of the monthly water bills (I live in Atlanta, where the landlord normally pays for water).
With those numbers in hand, I made an easy calculation:
Step 1: Add the monthly mortgage + property tax + water + estimated maintenance cost + insurance + estimated vacancy cost.
Step 2: Compare that to the monthly rental income.
Step 3: Which number is higher?
As long as the income is higher than the expenses, I’d be putting cash in my pocket each month.
Guest Post by Paula at AffordAnything.org