Houses Owning 80 rental houses makes a man very wealthy
Anyone who actually owns that many houses is probably very wealthy. I would be curious to meet such a person and ask why they have so much when most other real estate investors would turn to other more profitable forms of real estate such as condos or other forms of business investing.
Sure, someone who really loves investing in houses could make money owning that many houses, but for most people, managing more than 10 houses presents logistical challenges that cannot be ignored.
Here are some cases of
funding. To estimate the capital potential of real estate, most investors finance themselves (with other people’s money). It is relatively easy for someone who has several apartments for rent, but with each new apartment that is added to the portfolio, it becomes a little more complicated. Ten Houses is like a perverse sound barrier when it comes to funding. Yes, you can definitely get more funds, but the rules change. Lenders begin to view you as a corporate investor. The commercial products that these market leaders will offer really lend themselves to commercial investments that generate more money than individual homes. An example would be a portfolio loan, where you’re borrowing not just one house, but a dozen at a time. Sounds nice and easy, right? It is also becoming more and more expensive, the houses have limited liquidity. Maybe it’s easier to just own an apartment with about ten doors.
The next problem is that houses are valued by the selling price of neighboring houses. That’s often decoupled from what they can actually rent for, so again cash flow issues. It’s ok in the beginning because we all have to start somewhere, but with each new property added, cash flow becomes more important as other sources of income, such as B. short selling, running out. .Unlkke homes, commercial properties like apartments, are valued for what they can be rented for, which is what eventually drives most investors into the trade well before they purchase so many homes.
Next problem. It’s the interview. Compared to other forms of real estate (e.g. condominiums), single-family homes are relatively labor-intensive to maintain. With a few condos you’re dealing with multiple roofs, but with 80 houses you’re dealing with 80 roofs and everything in each house.That’s a lot of air conditioners, washing machines, bathrooms…
The next problem is accounting. Each house is like a mini-business that needs its own separate accounts and depreciation schedule, and according to the manual, each should probably have its own bank account to avoid commingling of funds. Do you really want to check 80 bank statements?Sure, you can hire accountants, but these people are expensive and, again, limit your cash flow.
And then comes the problem of protecting each house from the others,
So if tenant number 29’s dog, which the neighbor has been complaining about for a long time, but you forgot about him because you’ve been so busy taking care of all the other houses, goes and bites the neighbor and the neighbor passes Court hunts, ha.. Didn’t we end up losing all 80 houses in the resulting lawsuits. Lawyers will tell you everyone should be in a separate entity like an LLC, but lenders don’t really like that. Lenders like you who own a home in their own name and transfer ownership to a separate
unit sometimes trigger a sell clause found on most mortgages. Sure, the lawyers will happily set you up with a legal form that doesn’t trigger this clause or cause other problems with the banks, but that complicates things, and complicated things cost money. Consequently, special units require yearly maintenance, increasing costs and, in the case of houses, reducing cash flow.
The worst problem with so many periods is the law of diminishing returns. If you own 10 houses and buy another, you still get a significant benefit from buying a house. But if you own 80 and buy your 81st house, then any benefit you get is insignificant, but the work you have to do to buy it is the same as buying the number 11 house. Or maybe instead of owning 80 cheap homes, why not have 10 really nice luxury homes?It would definitely be easier to manage, at least from an accounting standpoint, and dealing with less financially more stable tenants is also a huge plus, but you’ve hit the law of diminishing returns again. While low-end homes often struggle with cash flow, high-end homes are almost guaranteed to turn into giant alligators eating your money every month. Rents just can’t with rising property taxes, cost of living, etc. (Not that it can’t, but
doesn’t expect it to be easy).
There are people who own so many houses for various reasons and are probably very wealthy, but I think most people would rather invest in other more commercial investments long before they get to that.