As mentioned before, I have a few rental properties. Today, I closed on lucky house number 10. This is a significant milestone, for those that aren’t real estate investors, because Fannie Mae limits the number of mortgaged properties to 10. I hit the limit!
While my original plan was to make money online, real estate is a pretty reliable source for passive income. The houses are rented and managed by a property management company. Mortgages are paid from my checking account automatically, and the rents are deposited into the same account. I do nothing and wait to see how much is left over in my account every month.
However, it’s not super profitable. The general rule of thumb is 50% of all rent collected goes to expenses, and the other half has to pay the mortgage and then is profit. For houses that rent for $1,000 per month, about $500 is for expenses. That would include taxes and insurance, which is typically included in a mortgage payment. From the other $500, that needs to cover the principal and balance portion of the mortgage payment, leaving about $200 to $300 left over per month.
Long term, I am a fan of real estate. I make the $300 per month after paying on the house. So really, I am getting equity plus the $300. When the house is paid off, the amount of profit almost doubles. Plus, selling the house would be pure profit at that point. However, $300 a month isn’t too exciting. The only way to make this work is to scale. A personal goal was to finally hit house number 10.
The houses also work well when I have clients that are paying well. It gives me place to put the money that not only keeps me from spending it on things I don’t need, but also makes money back. The real reason why I started investing in real estate was to park money when client work was good to generate money when client work wasn’t so good. Specially, to have money coming in when a contract ended, so I wouldn’t panic and take the next contract that came my way, even if it wasn’t a good one.
Since my mortgage limit is hit, I have been talking to some commercial lenders about options to go beyond 10. There’s also the option of taking the money for house number 11 and instead, using it to just pay off an earlier house, freeing up another mortgage. While more money would be needed, paying off the house increases the cash flow for that house as there would no longer be the mortgage payment.
Really, the houses are just a nice income stream that comes in without me having to do anything.