Become A Successful Landlord By Looking Ahead
I constantly run into people looking for advice on becoming a landlord and the challenge is they want to be successful at it immediately.
But they can’t, because being a successful landlord requires a long term vision and a long term strategy where you’re planning today for tomorrow. And tomorrow is years down the road!
The majority of the time that property you bought last year really won’t start making money for you for five to seven years, so you need patience.
I’m sure many of the readers are a bit confused right now by the five to seven year comment so let me explain what I mean.
During the first several years you own a property, even with good cashflow, you’re really treading water. The problem is if you needed to liquidate your property in those first five years, in most markets you’ll simply break even.
Even if the property has gone up a few percent in value after paying Realtor fees, legal fees, and penalties or additional costs associated with the mortgage you often only end up with a little bit of money left over. We’re talking less than $10,000 in normal markets.
Over five years that works out to only a couple grand a year and I’m sure the time and energy you put in over five years was worth more than $2,000 a year.
Long Term Success
Fortunately somewhere around that five year mark the pendulum starts to swing over to your favor. You’ve reached a break even point and now any appreciation starts working in your favor and doesn’t simply go to Realtors and fees.
Also your mortgage is moving to a point where less of the payment is going to interest and more of it is going to your principal.
Suddenly, or not so suddenly if you’re not planning long term, in that seven to ten year range many different factors start working towards your benefit.
Rents have started drifting higher over time, values may move up and down but over the long haul tend to migrate upwards and you’re making an even bigger dent in that mortgage.
Now your friends start telling you how lucky you were to invest in Real Estate and you’ve become an overnight success…
They seem to forget the years where you were breaking even and putting in your time to educate yourself, to get the right tenants in place and to make sure your property was well maintained.
You just smile and nod and go yep, lucky.
My Advice On Becoming A Landlord
So what’s my advice on becoming a landlord, or more importantly a successful landlord?
How about, don’t be in a hurry, just buckle in for the long term and continue to educate yourself along the way.
What are your thoughts? Do you agree, or disagree? Leave a comment, share with other landlords and let’s hear what people think.
Yes This is very true if ALL Business ventures.I never ceases to amaze me that when i see young people start any kind of business,Retail or otherwise, Suddenly there’s a new Jaguar Or Porches Parked out front.
Agreed Jim,
It’s the new norm to get the money in and then spend it faster as there’s always supposed to be more coming in. The reality is markets change and if you don’t build up reserves, have patience and plan longer term your short term excitement becomes long term disappointment!
Bill
That is absolutely true.Over 5 years you pay down the mortgage ,and if you want you can remortgage take out some money to buy another propert
Hey Joe,
In my experience I’d suggest hanging onto that equity and not pulling the money out if you can. As I’m getting older (and hopefully wiser) I regret many of the refinances I did in my earlier years as I’d have grown slower, but would also have an even bigger stake of equity!
Bill
well said Bill! Thank you for your great info.
Thanks Elizabeth!
Bill