How do people make money renting homes?

Question

Let me know if I have got this wrong but it doesn't seem like one can make much money renting homes. Lets say you buy a home at 150,000 (price of lower class homes in the town I live in but still in good schools). The monthy mortgage, taxes and insurance would run about 1000.00 a month. I can't imagine someone paying much more than 1100 or 1200 a month to rent these homes. Then what about if something breaks down and you wipe out all of your earnings replacing it or the house goes unrented for a while.

Is the concept less about cash flow and more about getting someone else to pay for a house that you will sell down the road?

Answer 1

There usually is little to no profit in the early years of owning a rental property.  You need to be pretty knowledgeable to put together a good deal, finance it properly, and above all, maintain and manage it properly.

When property prices are rising, you have an appreciating asset with no carrying costs (as long as rents cover all expenses, taxes, etc!).  Yet there is depreciation you can write off against income, and reduce your taxes (i.e. more $$ in your own pocket).  As you build your assets, and if rents rise in an inflationary market, you gradually have more cashflow.  And if you sell it, you make a profit.

Answer 2

The money comes when the house is paid off, or when it's sold and a profit is turned. The owners have essentially had someone pay their mortgage for them, so 30 years later after renting it out, it's paid off and they can sell it and pocket everything without ever having paid more than minor upkeep for it.

Answer 3

I support my family solely by my rentals, I have no other means of income.     Your example is assuming the owner did not invest, I have invested in my properties, some simply bought with cash.    Your example is for people unwilling to risk their own money and they can get upside down pretty quick in this market.

Answer 4

Consider this.  If I take out a mortgage on a home, then rent it out for slightly more than the mortgage payments each month, I am letting someone else buy a home for me.  The cool part is that I build equity for free and the extra I charge over the cost of the mortgage can be used for maintenence on the property.  When I have enough equity I can get more properties and the cycle continues.  People always say why rent when you can own?  That's one good reason.  Let someone buy it for you.

Answer 5

Most property rental owners aren't in the rental business to make the big money by renting the properties.  The benefit is that they have tenants in the property making the mortgage payments and they are basically getting a free house and the profit is realized when they sell the property.  Owning the property adds to their net worth as well.