When to buy? Has the good time for buying rental houses already passed?
By David S. J. Meng
Real estate
Theodore Roosevelt said: “Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.”
The famous entrepreneur Marshal Field said: “Buying real estate is the best, safest way to become wealthy.”
Real estate investor Louis Glickman said: “The best investment on Earth is earth.”
Industrialist and business magnate Andrew Carnegie said: “Ninety percent (90%) of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
My wife and I are small ordinary employees. We have 0 inheritance. We raise three kids and pay for their college expenses. We send money to parents and relatives. We give to our church. We did not save much money in nearly two decades of hard-working at our jobs. However, by investing in real estate on the side and spending a few hours per week, our net worth increased rapidly, as detailed in my book “$5 million in 8 years”. We want to share our experience with others so that other working families can achieve financial freedom.
Listen to those who have done it
The naysayers often say: “This cannot be done now. He got lucky and did it in the good old days. The golden time has already passed. You cannot do it anymore.”
Do not listen to the naysayers.
Do not listen to those who have not done it. Listen to those who have done it.
Every decade, there are some people who invest persistently and reach financial freedom.
Every decade, there are other people who do not invest. Then after the decade has passed, they look back at the past decade, and regret that they did not start 10 years ago.
The Past
Let’s say that John Smith read some real estate books and wanted to start to buy rental houses. He was unlucky. He saved enough down payment and bought his first rental house in 2007 near the peak, right when the once-in-a-life-time crash was about to start.
Then the market crashed.
In 2008, Fannie Mae and Freddie Mac failed and was bailed out by the government. AIG failed and was bailed out. Lehman Brothers went into bankruptcy.
John Smith is a simple guy; he cannot time the market. Neither can I. He stuck to his simple plan:
“Save enough money as down payment and buy a house as rental property. Then save more money and buy another house. Then save and buy more.”
In 2009, after two years, he saved enough money as down payment and bought his 2nd rental house.
In 2011, he bought his 3rd rental house.
In 2013, he bought his 4th rental house.
His salary income gradually increased. His cash-flow gradually increased. He could buy a house each year now.
In 2014, he bought his 5th rental house.
In 2015, he bought his 6th rental house.
His earlier houses have appreciated in value. In 2016, he did cash-out refinances to pull cash out to buy two houses: his 7th, and 8th.
In 2017, he bought his 9th rental house.
In 2018, he bought his 10th rental houses.
Then he smiled and said: “This is enough. I will stop buying. I will enjoy life.”
The earlier houses have more cash-flow now due to rent increases. Mortgages are being gradually paid down every month. Houses have been gradually appreciating in value. He has gradually established a network of professionals to help him.
His money trees are doing well. He is happy.
Of course, there should be safeguards at each important step, as described in my book, for protection and to control and minimize any risks.
John Smith lives in a medium-housing-price market. He is satisfied with ten houses: his ten money trees.
If you live in a low-priced housing market, maybe you will acquire 20 houses.
If you live in an expensive housing market, maybe you will buy a house every 2 or 3 or 4 years, and in 10-15 years you will buy 6 houses. In an expensive area, maybe 6 big money trees would be enough, depending on your own situation.
It may take you a decade, or may be 15 years, or maybe 8 years, depending on your income, cash-flow, how many times you do cash-out refinances, as well as your location.
Once you have planted enough money trees, hold them for the long-term. Over time, with rent increases, principal reduction, and house value appreciation, you will secure the financial freedom for yourself and your loved ones.
The Future
Now, it is year 2020, and John Smith wants to share his experience and help others reach financial freedom too.
He starts with helping his neighbors. His neighbor on one side is Amy and her husband Adam (AA). The neighbor on the other side is Bella and Bob (BB). The neighbor across the street is Chelsea and Charlie (CC).
John invites them to his backyard patio for coffee, of course with social distancing and wearing masks. John describes his investments to them.
AA said: “Awesome, awesome. We do have quite some cash sitting in the bank earning 0.2% interest. Let’s do some research and thinking, and then invest.”
BB said: “But, but, the best decade has already ended. You got lucky in the past decade. We have quite some cash in the bank too, but pouring that cash to buy rental houses in risky, because the future is so uncertain. Some bad things can happen in the near future. The best time for investing has passed.”
CC said: “See, see. Thanks for sharing. You did very well. Wow, wow, investing can make such a big difference. We will invest too. We do not want to deal with rentals and tenants, but we will invest in the stock market. But, the market is so high now. What should we do?”
John Smith told CC: “You can do it the same way as I did, with dollar cost averaging. Instead of buying a house every couple of years, you can save money and then put it into SP 500 every month. Just be persistent for the long-term such as 15 years.”
Predicting the future, timing the market, vs. dollar cost averaging
Hindsight is always 20/20.
The future is always uncertain.
The future is unknowable.
Surprises happen.
The world can change quickly, for example, 911, wars, Covid.
Therefore, regarding forecasters, there is a saying on Wall Street: “Nobody knows nothing!”
Warren Buffett said: “Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
Buffett said that he basically ignores economic predictions: Don't worry about economic predictions. They just make guesses. (https://finance.yahoo.com/news/warren-buffett-dont-worry-economic-214342834.html)
Some will try to time the market and they may win this time, but lose the next time. The chance of winning may not be better than gambling or flipping a coin.
No one has a crystal ball to see the future. A humble person would admit: “My crystal ball is in the repair shop.”
Financial freedom
AA do their research and analysis. They decide to save enough down payment and buy their first rental house. Then save enough down payment and buy their second rental house. Then repeat.
They buy their first rental house in 2021.
They continue to save money for the down payment. They buy their second rental in 2023. They buy their 3rd house in 2025.
In 2026, they open a home equity line of credit (HELOC) in their primary residence, and use the money as down payment to buy two rental houses (4th, 5th).
In 2028, they buy their 6th rental. In 2029, with the help of cash-flow accumulation, they buy their 7th and 8th rental houses. In 2030, they do a cash-out refinance on their earlier houses with a lot of equity, and buy two more (9th, 10th).
Over the next several years, with these ten money trees, their rents increase, principals are being paid down, and the houses gradually appreciate over time. With their substantial cash-flow and assets, AA have realized their financial freedom.
CC saves as much money as they can, and put it into an SP 500 index fund every month. CC do not check the market every day. They look at it only for one minute when they put more money into it.
Fifteen years later, in year 2035, they get together again in the backyard of John Smith.
AA said: “Thank you for your sharing 15 years ago. We could never have dreamed that we could achieve so much in 15 years. We now have the wonderful financial freedom!”
CC said: “Yes thank you so much. We have also achieved our dream of financial freedom!”
BB look to the new decade ahead, and say: “It is too late now. We are too old now. Plus, the future is so uncertain. Bad things can happen.”
Take action
Every decade, some people take action, pull the trigger, and achieve success.
Every decade, the naysayers doubt and criticize and wait, as the decade passes.
As I mentioned in my other article “Can he make another $5 million in the next 8 years?”, BayFamily set a bold goal of $10 million. People doubted him, but he successfully achieved his goal in about 13 years. Our humble example is expected to also make $10 million in 13 years, even in our area where housing prices have increased by only 3-4% annually.
Some people bet on the right hot stock luckily and win big. But that chance is perhaps only one in a thousand.
In contrast, the majority of people will find out that the BayFamily example of $10 million in 13 years is repeatable; some may achieve it in a little less than 13 years, some may achieve it in 15 or 17 or 20 years. The important point is: The majority of people who are willing to make a persistent effort will find that the long-term returns and the steady wealth accumulation strategies in my book ($5 million in 8 yerars) are reproducible. They can repeat it. By persisting for about 10-15 years, they can achieve financial freedom.
Let's not waste our time in the next years. Let's not waste the opportunities in the next decade. Do not let anyone tell you that you cannot do it. It is your life. Block out the noises. Listen to your heart. Be courageous. Be bold. Be tough. Be resilient. Be optimistic.
I hope that you do your own research, then have the courage to decide, pull the trigger and get started. We have only one life on this earth. Our time is limited. Someday not too long from now, we will have to leave. How many good opportunities and good fights will you have in your entire life? 人生能有几回搏? When we are old, sitting in an armchair and looking back, won't it be regrettable if we did not try?
选择“Disable on www.wenxuecity.com”
选择“don't run on pages on this domain”
