Real Estate as a wealth building vehicle.

[AdamL]

Has anyone here gotten involved with buying properties for a small amount or no money down at all and renting them to pay off the mortgage?

In my research I've come across numerous books that claim this is the most effective way to build wealth for a middle-income earner. The stock market tends to pay off more when you are already dealing with large sums, but you can work with 300k in capital (a house) with 30k down. You can't get a mortgage for a stock.

Some concerns:

1) Finding the right tenants. How hard is it?

2) Rent rooms, rent the whole house, or split it into basement and upstairs and rent it as two apartments?

3) How risky is it to do this when real estate prices are somewhat uncertain? I see real estate prices coming down in the next ten years as interest rates rise. They might still increase enough to offset that, but it will at least put a damper on things. When you're only putting %10 down does it really matter if the house doesn't appreciate, or even depreciates a little?

Adam

[GeorgeF]

I suggest you spend a year looking at real estate in your area. Talk to a realtor and see what multifamilly dwellings are available. Read real estate for sale ads. Go see the buildings and see if you think you can manage the building, and the tenants.

[Ray Zee]

the book stuff doesnt work as not many people will sell you their property for no or little down. why would they. if it goes up you make out and down they get it back. most times only those with poor vacant land will entertain that idea. as gorge said do your foot work first.
most poeple that get rich do it by buying real estate. and many broke.

[lu_hawk]

With only 10% down it matters much more if the real estate depreciates. A greater than 10% loss and now you have to pay the bank to sell the place.

[midas]

Adam:

If you can't answer questions 1&2 yourself - you shouldn't be in real estate.

Regarding question 3, high interest rates are great for landlords (more renters), low interest rates (renters buy homes) are terrible for landlords.

Do your research, build some cash-flow models and decide if you like the risk/return profile before you get taken on some no-money down scam.

[SossMan]

[ QUOTE ]
I suggest you spend a year looking at real estate in your area. Talk to a realtor and see what multifamilly dwellings are available. Read real estate for sale ads. Go see the buildings and see if you think you can manage the building, and the tenants.

[/ QUOTE ]

I agree with your post. However, I lend on Multi's, and I don't think this is the best time in the world to be investing in apartments. GIM's have skyrocketed (up to as much as 12-14!!), cap rates are way down (as low as 4.5-5%), and income is steady at best. Most of the purchases we have seen are cash flowing at about 1.2:1 on a 30% down. That's about a 3-4% cash on cash...so you would be banking on some serious property appreciation (i.e. increase in rents, decrease in expenses, or an unlikely continued increase in GIMs and decrease in Cap rates) to beat even a CD.
Keep in mind, that much of this is dependent on the local area, and I'm sure there are still areas where you can do much better in terms of cash flow and appreciation. I lend mostly in the SF bay area, and it's pretty crazy.

good luck.

-sossman

[Nemesis]

If you're looking at LONG TERM investing I don't think anything beats real estate as far as tax advantages go, and renewable income. I'm sold on RE and as soon as i get the capital to begin investing i'm going for it.

[SossMan]

That's fine, and I somewhat agree with you, but there are good times to get into RE and bad times to get into RE. Obviously, this is location dependant. Just realize that it's not a risk free giveaway, or else everyone would be in it.
Additionally, I was simply commenting on the increased costs associated with obtaining these cash flows in the Bay Area (specifically MultiFamily properties). If you do your homework, you can still find good deals, but it's not as simple as seeing something for sale and dumping money into it.

[element00]

ditto what nemesis said

[Warren Whitmore]

(1) How I turned 2 million in cash into $15 in real estate by steve martin.