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Current mood:  productive Category: Jobs, Work, Careers
The nice thing about vacation rentals is you can charge 4X more per month. But you have to also consider how long the rental season is for. My theory is that to break even, you need to make all your expenses by the first half of the rental period. This will help cover loss due to vacancies. It can be done. A friend has a neighbor with a multi-million dollar home. He told me that he makes enough money renting it out for 3 months to cover the whole year's mortgage.
Most books don't tell you that your monthly income from rent is negligible ($100 - $200 a month), and it's really the equity built over time that's important. In fact, most of them recommend that you mortgage the property for 100+% of it's equity every 2-4 years. This is for 2 reasons. First is that this gives you tax-free cash to put into more investments. And second, it allows for bigger deductions on your taxes. But I don't like having that because when prices go down, like now, it makes banks nervous. On top of that, the more you owe, the more you need for rent, which may overprice your rental and leave it empty longer. And an empty rental is negative cash flow.
But that's how a lot of these people (Carlton Sheets, Robert Kiyosaki, The Rice Brothers, etc...) make their fortunes. Get ANY piece of real estate, borrow as much as you can against it, then do it again. This is how they can say that they "made" $50K in 4 hours. They bought a house priced below market value. Bought it, mortgaged it for 125% and walked away with the difference.
$20K down on a $200K house worth $250K. Mortgage it for $300K and walk away with $80K (CASH) for 4 hours worth of paper signing.
Of course they usually don't talk about how to pay the $300K mortgage. Even at 6% over a 30 year fixed, you're looking at $1800 a month in P&I, not including taxes, home owners/rental insurance, PMI, etc... Which would probably bring your payment to $2500. And good luck trying to get more than that in rent. Even with a higher-rate interest-only loan, you're probably looking at $1200-$1500 a month before the etcetera.
I've found that rent is usually 1/200th of the house price per month. If it's a $200K house (market, not mortgage) then rent probably tops out at about $1000 a month. So far it works just about everywhere. But at the 6%, 30-year fixed, this is $1200 a month P&I. Which means you're perpetually on the high end of the market. So it's really a lose-lose proposition.
If one rental goes without a tenant for more than a few days, the whole thing unravels. Of course, the more you own, the bigger your buffer gets. And the more cash you have on-hand to cover the problems. Do this plan with just 10 - 20 homes and you could have a million in cash (tax free) in the bank. Or mattress. Or shoe box. Or wherever you like to keep your cash.
And banks are a little nuts like that. Have $80K in the bank, they'll give you 2 more $300K loans. Have $200K in the bank, they'll give you 5 more loans. What they seem to miss is the fact that all the money in the bank is their money. After all, they just loaned it to you.
Congratulations!!
I just gave you the secret of making a million dollars in less than a year. And I'm not even going to force you to go to a seminar or pay for "coaching" or buy a bunch of video tapes or anything.
 | Currently listening:
Torch This Place
By The Atomic Fireballs
Release date: 18 May, 1999 |
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