First of all, I would just like to let you all know that I am brand new to real estate investment. I am 20 years old, and have only just recently started to educate myself about r.e.i. My question is this: If you buy a house and rent it out, the money that you bring in from your tenants every month goes to pay the mortgage right? So, how then do you make any money for yourself? I see how you benefit in the long run, because the tenants are basically paying to buy you a house, but is there any benefit in the short run. Sorry if this beginner question offends anyone in the forum, but I would just like to learn as much as I can, and to do so I have to start with the basics.
I believe that you are under the misconception that your rent will only cover the cost of the mortgage. Your rent should cover the mortgage, taxes, insurance, repairs, and vacancies, and still have some left over for supporting yourself. If it does not do that, you need to look at a less expensive house that will still bring in the same rent.
Let me give you an example, I bought a house a little over a year ago that rents for $850 per month. The mortgate (P&I) is $463 per month. Insurance is $61 per month. Taxes are about $125 per month (they change so it can’t be an exact amount). So without any consideration for repairs, I have about $200 cashflow per month left over. This sounds real good until you get to the repairs. I just finished replacing the air conditioners condensing unit to the tune of $1420. I had to replace the handles on the shower for another $60. I just got norification that my taxes have gone up another $200 per year.
All things being considered, the house is still profitable. I need to go up on the rent, but the market is soft right now, so I am going to have to wait to do so. I am planning on keeping this house for the long term, because I feel that it will continue to make me money for a long time.
I would recommend that you continue reading, asking questions, and watching the market in your “farm” area. If you find a deal that you think will make you money for the next 5 years, just jump in and do it, but watch out for the repair bills. Those can turn a profitable venture into an alligator that has you by the pocket book.
Good luck in your investing,