The real beauty of owning rental property when the seller will allow you to pay them directly every month allows you to collect rent from each rental property you buy to pay for those properties.
The key to make this strategy work is to buy each income property so a tenant who will be renting the property will pay enough rent each month to cover 1/12th of the annual property taxes, 1/12th of the annual property insurance cost and at least 10% to 15% of the monthly rental income to cover the cost of the maintenance for that property when needed. This money for maintenance is set aside to pay for making the property look new when a tenant moves out such as new carpet, paint and any other damage to the property the tenant did during their stay. Also money for when the roof on that property eventually wears out, when the water heater eventually goes bad or the furnace or air conditioner breaks down and also enough money remaining each month to make the monthly payment to the seller and hopefully provide extra money each month for the owner to put into their pocket. Here is an example to show what I am talking about.
For this example each rental property brings in $1,000 in rent each month. This is the formula I use to determine if enough rent collected for each potential rental property to support itself and also provide extra income for the owner each month.
This excess money from the (9) nine rental properties gives you, in this example, $900 each month to make the payment on the house you and your family live in. If you deduct the $600 from the extra income from the rental properties which is $900 each month ($900 – $600 = $300) leaves you an extra $300 each month to cover the cost of the property taxes and the property insurance for the property you and your family live in. If you did this simple example the house you live in would truly be FREE.
So as you can now see it would be far more advantageous for you and your family if you use the $100,000 dollars you have saved by dividing the money into $10,000 increments to use as down payments and buy a total of ten (10) properties than to buy only one house. Here is how you can use leverage to create wealth using this strategy.
Over the next (15) fifteen to (30) thirty years you not only lived in your home for FREE your tenants went to work every day to earn money to give you every month in the form of rent you use to pay all of the costs of each rental property and give you extra money each month to pay for the house you live in. Someday when all (10) ten properties are completely paid for you then no longer owe any monthly payments to sellers for any of your (10) ten properties and even if the value of all of your properties never increased in value over that time you would still have a net worth of $1 million dollars (10 houses X $100,000 = $1 million dollars).
Once all of your ten properties are completely paid for the rent each property brings in each month minus 1/12th of the annual property taxes and 1/12th of the annual property insurance cost and 10% of the monthly rent from each rental property has been deducted for needed maintenance costs, all of the remaining money will be yours to spend or save as you wish because you no longer have to make a monthly payment to the sellers you bought the property from. This income from all of your rental properties minus these costs could also be used as a nice pension plan to allow you to live a better life in your retirement years. The question you need to ask yourself……
Why Would You Only Want to Own One House Valued At $100,000 When You Can Own $1 Million Dollars Worth of Real Estate With the Same Amount of Money?
This is just one way “Leverage” can help you create wealth for you and your family.
This is why I always tell everyone to definitely be conscious of how they spend their money or their ability to borrow money. By just thinking a little differently, you can and will definitely compound your future financial wealth and get to financial freedom sooner.
Until Next Month, Good Luck and Happy Investing!