So I am curious if the following is possible --> Let's say I buy a house in some area with lots of housing demand (colleges + companies, etc) and I rent it out to some people. Most houses produce several thousands of dollars a month. Is it possible to pay for monthly loan payments with rent incomes? It just feels like you can buy a house and it will pay for itself... Yes/no? I know very little about investing, but it feels to me that house can purchase itself, basically... I wanna know what I did not consider... cannot be so easy after all right. House pays for itself and at the end you have free property
I wanna know what I did not consider.
Some things you did not consider:
- The down payment on the mortgage--typically higher than what would be required for an owner-occupied home. (Thanks @jamesqf)
- Other costs, such as maintenance, taxes, and insurance.
- Risks, such as the risk that you might not find suitable tenants, that your house will lose value, or that the market rate for rent decreases.
- The work required to be a landlord, such as screening tenants, collecting rents (sometimes from tenants who can't or won't pay), managing paperwork, scheduling maintenance, etc. (You either have to manage this yourself, or pay someone else, such as a management company, to do so.)
Even if you make enough in rent to pay these costs and the mortgage payments--which certainly is possible in some markets--with the work and risk involved, it's not accurate to say you'd end up with "free property".
Having a rental that pays for itself AND covers all of the expenses is entirely possible. Even if you live in one of the units! I should know, I did it twice 😁
Currently two of my buildings I lived in and profited from while living there. My third building I bought as an investment and it also profits.
In fact with as little as three buildings, or twelve units, I've achieved total financial independence. So yes, in short, it's possible.
Check out the website Bigger Pockets, that's where I learned about house hacking and managing properties. Also feel free to reach out to me on Twitter if you have any questions.
The thing is, as with any other investment, you take on a certain risk.
You can always have unforeseen costs, vacancies, late rent payments or even people damaging your property. The mortgage payments will continue, despite of it all.
So it is the same as any other investment you do with borrowed money: You should be able to handle the loan, even if your investment does not perform as expected.
Other than that, it is entirely possible, and this is in fact what people with enough money sometimes do. I say people with enough money, as you you need to be worthy of a good rate to still make a profit after interest. So that explains why not everbody is doing it.