Do landlords make most of their profit from leasing their properties or for selling them down the road?

Question

Hello, I have heard that most property owners who lease out their properties make most of their money from selling it down the road if the value increases. What I want to know is whether there is a substantial earning potential in the actual leasing of the properties. I know it depends on various conditions, but if you one makes the right business decisions can he or she expect to make more money leasing or selling their property in the future?

Informed answers only, please. I am not in the mood for comedians or people who want to take their anger out on Yahoo! Answers. These sorts of answers will be reported as abuse.

Say the property is paid off in full. I own it. Then which makes more money?

Answer 1

In my case it was absolutely from selling down the road. The whole idea with real estate investment is to leverage your position (i.e. borrow) and generate a tax loss with a modest positive cash flow -- enough to cover future repairs and vacancies.

Most of the properties that I owned had only around 5% equity when purchased. At the peak I had about $15k in tax write offs and a few hundred in positive monthly cash flow. The cash balances would ebb and flow as repairs became necessary or a property with a mortgage payment stood empty between tenants. Most of the time I had enough cash to cover contingencies but a few months did get rather worrisome especially when one place had a collapsed sewer line and 2 others were vacated and trashed by "midnight moves". Facing thousands in repairs and mortgage payments with less than half of the mortgage payments coming it DID cause a few sleepless nights!

The financial windfall came at sales time where the increase in value netted annual rates of return of over 200% in some cases when compared to my original cash investment, i.e. the down payment. That made those sleepless nights worth it. Sort of...

Answer 2

Hi,
If your property is paid in full, you stand to make huge money if it is a multiple unit property. If you charge 750 + utilities for a normal two bedroom, and you have four units per building, then you make $3K per month minus taxes and Ins. That's 36K per year if the rent is paid if full and on time. Over ten years that's 360K. This doesn't count rent increases over time either, so yes you can do quit well if the property is paid in full. If it is you are one prosperous Landlord. Most Landlords are still paying the Bank for their loans......myself included. The real trick is to get it paid off, and that's the hard part! And why on Earth would someone want to sell a cash cow? Unless they are sick of dealing with tenant issues! Of course there are always repairs that come into play too, but you get the idea. Also, equity can be huge if you do it right. I have four properties and all four have more than doubled in value since I bought them three years ago. I used this equity to re-hab one of my buildings from a three unit to a five unit. This upgrade attracted a better level of tenant which means I can charge up to 50% to 75% more for each unit, and reduce the scumbag factor at the same time. Sorry but I hate people that live off this system and complain they don't have anything in this life. You get back what you are willing to put into life. Work hard, and make good business choices! And don't let scumbags steal your money! If they don't pay..... evict right away!

Answer 3

I believe leasing properties benefits the landlord more. The reason is because when you're leasing the house/apt, you're charging the tenant more rent than what your mortgage costs. As a result, your tenant is paying your mortgage and giving you money to spend.

On the other hand, when it's a seller's market, you should sell the house. However, this is in the future. People who usually sell their house when they want to upgrade to a bigger house and the money they receive on the current house is used as downpayment for the new house. If you can profit from selling your house, it's not a bad idea to sell it.

Answer 4

down the road is the answer
the monthlies keep your head above water and a bag of groceries, until you get to the 3rd & 4th yrs and so on, do you make any real loot on the monthlys.
I do not sell until I've had the property for 20 yrs or unless its a dead horse, then shelve the RE, on the flip side, I held others for 30-40 yrs because they are really paying, and why get rid of a good thing.
If you can buy for little or no down, recapture your downstroke in a few yrs of renting and increase your cash flow to 10-20k monthly, starving and eating beans for a few yrs at the onset is well worth it in the long road and then some...not to mention all the writeoffs etc.

Answer 5

you can make money renting properties, but you have to see if your mortgage and the fees are less then the rent. also it is true mostly landlords make money buy selling the property down on the line

Answer 6

If you dont have substantial money down, chances are your mortgages and insurances will cost as much or more than the rent. Especially if you figure in that there will be vacancies here and there.

Answer 7

Definitely from selling later.