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I am being told by this guy that the following is a guaranteed-to-work way to become rich and retire early.

He says to start early. 20 years, or near that age. Buy 1 house a year. Rent it out. Start selling these houses after 15+ years.

He says this in a video on youtube which has thousands of views and many upvotes.

I don't understand how this is even physically possible. How do you buy 1 house a year? Unless you are filthy rich already, you can't pay cash and need to take a loan from the bank. But even then you need to make enough money to pay a downpayment every year. But even if you are also capable of that, what bank would be willing to give you that loan? Won't they just take a look at your finances, realize you're already way in over your head with multiple other mortgages, and refuse to loan to you?

Charles Duffy
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Okaei
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    "guaranteed-to-work way to become rich and retire early" = click-baiting. If there was a guaranteed way to become rich, it would be far more common. This is an interesting concept I hadn't heard of before, but comes with very high risk. That risk in and of itself prevents there from being a guarantee. Views and upvotes on a video add nothing to the credibility of the information given, just whether or not people are buying whatever he's selling. – BobbyScon Aug 08 '18 at 15:34
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    "How do you buy 1 house a year? Unless you are filthy rich already" Not filthy rich, but definitely well of and / or high income. – TomTom Aug 08 '18 at 16:11
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    Where the 20 years old is expected to get money? If one has a spare 40K (20% down on 200K house, not even mentioning finding a bank willing to give a loan), I'd say he or she has a better start in life than most. – Alexander Aug 08 '18 at 16:35
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    Anecdote: the "self" in "self-help" usually refers to the self-help material author. – Mindwin Remember Monica Aug 08 '18 at 16:38
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    Guaranteed-to-work way to become rich: = already be rich! It's so easy I don't understand why everyone isn't doing it. /s – aslum Aug 08 '18 at 16:50
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    Reminds me of the joke about self-made millionaires: "When I started out I only had $27 in my pocket, $500,000 in my other pocket, and a vast family fortune to fall back on." – Moyli Aug 08 '18 at 17:06
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    "After years of disappointment with get rich quick schemes, I know I’m gonna get rich with this scheme - and quick!" - Homer Simpson – Nuclear Hoagie Aug 08 '18 at 17:14
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    The guy is simply proposing an investment with very high leverage. If you have guarantees and/or friendly creditors to start with, all goes well until the interest rates go up, or liquidity dries up for a moment, or something small otherwise goes wrong, and you crumble under your debt. – Nemo Aug 08 '18 at 17:39
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    I know someone who did exactly this. The first one is the hardest. It helps if you have skills in home construction and can buy 'ugly' houses at a steep discount and spend 40-60 hours a week remodeling them. After each remodel you can rent it high and refinance at a new appraised value to take money out or just use the increased equity (paper money), rental income, and "track record" to help qualify for the next loan. It also helps if you start this during a recession or right after one, and not right before the next recession. – Alex R Aug 08 '18 at 18:50
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    @AlexR Right, your friend probably calls himself a redeveloper, landlord or property manager. Most (who are still in business) don’t leverage themselves to such an insane degree. It’s good honest work, but anyone who was in the business in 2008 can attest that it’s no guaranteed way to get rich quick. – Davislor Aug 08 '18 at 19:50
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    I also know a few of people who did this. They had home construction skills so they weren't paying through the nose for repairs. One bought very low priced beaten up homes and renovated them for Section 8 housing. And although that meant a somewhat lower rent, it was steady income via the vouchers. In all cases, start up money was needed to begin. Additional houses were easier to add later on because once a number of homes were owned and there was more rent coming in. However, in all cases, there was no way that they were able to buy one house per year. It took much more time than that. – Bob Baerker Aug 08 '18 at 22:42
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    Which brings up another practical difficulty: if you’re repairing, renovating and maintaining all the houses you own yourself, how many tenants could you, personally, handle before you needed to hire property managers? – Davislor Aug 09 '18 at 02:12
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    The easiest way to become a millionaire is having 100 millions and gambling 99 away following advice from “this guy“. – DonQuiKong Aug 09 '18 at 05:05
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    Ah the famous "three-step guide to becoming rich"... Step 1: Be rich. Step 2: Use your riches to make more riches. Step 3: You're rich! – Aaron F Aug 09 '18 at 13:28
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    if you are 20 and want to get rich, plow as much salary as you can into the stock market. 20 is a great time to start. The housing scheme may open up when you retire at 50 a millionaire. – Jamie Clinton Aug 09 '18 at 23:15
  • @Nemo What about the possibility that one or more of your rental properties might become vacant for some period of time before you can find another renter? (Seems more likely as your property count goes up.) Now you are missing out on income you need to pay the mortgage, and may need to resort to things like offering lower rent to even fill the vacancy even though they may not cover your expenses. –  Aug 13 '18 at 04:29
  • @Michael I'd say that falls under "liquidity dries up for a moment". As you show, something that might be unconsequential if you really owned the properties can become a big deal when you're doing everything out of borrowed money. – Nemo Aug 13 '18 at 16:03
  • Any chance this is Dave Ramsey? – Chillin' Oct 15 '19 at 14:29
  • "He says this in a video on youtube which has thousands of views and many upvotes." This is an appeal-to-popularity logical fallacy – Chillin' Oct 15 '19 at 14:34
  • I know a guy who's been doing this for 15 years now. He has 5 apartments, 4 of which he rents out. Its hard work and can be very stressful but I imagine he'll have a very cushy retirement. – JonathanReez Jul 20 '21 at 02:54

9 Answers9

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How do you buy 1 house a year?

You save up the money you make from the rent for a down payment on the next house. Then you save up the money from those two houses and buy two more the next year (or one bigger one). Rinse, repeat.

what bank would be willing to give you that loan?

You'd be surprised... This is essentially a major cause of the 2008 financial crisis

The problem is (as everyone saw in 2008) that it doesn't take much for this house of cards to come tumbling down. A few missed months of rent, a few unexpected major expenses, or a drop in home value before adjustable mortgages reset and the loan can't be refinanced, and you lose EVERYTHING. You have to give up some houses in foreclosure, which reduces your income, which means you can't make other mortgage payments, and you lose them in foreclosure, etc.

These people on YouTube and in seminars in hotels have no skin in the game. They are just trying to SELL you a plan that DOESN'T ALWAYS WORK. If the plan was foolproof, why wouldn't they use it themselves rather than peddling their scheme and INCREASING their competition?

To be fair, I'm NOT saying that it's horrible to buy rental real estate with debt, or that it's impossible to succeed doing so. I'm more refuting the claims of these get-rich-quick-scheme peddlers that it's safe and fool-proof. Using debt greatly increases risk, and reduces absolute returns (since you're spending money on interest payments).

D Stanley
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    I am aware of the risk involved (I always say, for every person telling you their success story, think about the thousands of people whose failure you never hear about), but this advice seemed in particular weird to me. Where I live (Denmark), banks would never dish out loans like this. Maybe in the US it's different? – Okaei Aug 08 '18 at 14:26
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    Yes it is (and it's better than it was before 2008). Was the YouTube guy in Denmark as well? I can't speak to how it would work there. – D Stanley Aug 08 '18 at 14:30
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    The piece that might help is the discussion of price to rent ratio. I can see that in a nearby town, houses that sell for $1M will rent for about $4000/mo. In another town, I bought and renovated a 3 family for total $180K, and it rents for a total $2000/mo. The $1M home can't be part of OP's plan. With good tenants, the 3 family might be. One cliche is that real estate profits are made at purchase time. If you start by needing to feed the property, it's tough to turn a profit. – JTP - Apologise to Monica Aug 08 '18 at 15:27
  • “and reduces absolute returns“ that's oversimplified. As long as the returns on the money are greater than the interest, debt multiples your returns. Problem is, it works both ways. – DonQuiKong Aug 08 '18 at 17:38
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    @DonQuiKong Debt multiplies your relative returns. If you get $2000 from rent but spend $1000 on interest, your absolute return is reduced. That's why I chose that modifier. – D Stanley Aug 08 '18 at 18:39
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    To continue... debt multiplies your relative return because your initial investment is lower since you borrowed the rest. So instead of investing $100k you invest $50k and borrow $50k. Thus the percent return is doubled (because you're dividing by 50k instead of 100k) – D Stanley Aug 08 '18 at 19:14
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    @DStanley yes, but it reduces absolute returns compared to the same investment without debt. However, the same investment without debt is not an option. So you're comparing to something impossible. Compared to investing the money one actually has, absolute returns increase (if return > interest). – DonQuiKong Aug 08 '18 at 20:55
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    I know someone who used to have several houses. Rent went down, everything got foreclosed. – Loren Pechtel Aug 09 '18 at 14:23
  • @Okaei banks everywhere will look at things like this essentially as business proposals and evaluate the risk that way. If I'm currently successfully renting out 5 properties, with year+ long leases, in cities/areas likely to be economically stable, a bank can pretty comfortably give me another loan. Banks love steady recurring income like rent in terms of risk assessment (compared to say, retail store sales). On the other hand if I own 3 homes rented to students who might go broke at any moment, the bank probably won't give me anything. – mbrig Aug 09 '18 at 17:56
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    I'd like to add that even if everything went off well, there is the principle that the market only pays for value added. This means that OP would have to manage the homes, keep track of the renters, regularly maintain the property for an increasing number of homes, write up lease agreements, possibly file lawsuits against negligent renters, and know the market for how much rent makes the mortgage price worth it... There is a ton of work even if everything goes nominally. – DeepDeadpool Aug 09 '18 at 18:31
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    But usually you will come out even on rent, at best, or pay a bit into the red for maintenance. This answer is completely inaccurate. – Jamie Clinton Aug 09 '18 at 20:08
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    It isn't that it "doesn't work" -- it works fine, but just not always. And if you knew when it would work and when it wouldn't, you could make billions on the market instead of millions in real estate. It is "foolproof" in that there isn't much you can do to avoid it failing horribly when it does fail; so a fool can do it. – Yakk Aug 10 '18 at 22:57
  • Yet that is what John Sonmez claims. I presume he has some credibility. – Peter Mortensen Aug 13 '18 at 17:48
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20 years, or near that age. Buy 1 house a year.

As you probably know this is near impossible to do. Have around 20 years and be able to get loan for buying house.
You are on right track that you would need a rather large amount of money to start. For example this "fool proof" method don't mention time when you're spending money on property (paying rates) but not renting it yet.
Avoiding it would require buying rentable house (with furniture) on Monday and renting in on Tuesday. One month without rent means you are one month lighter of paying mortgage from your own pocket.
He probably don't mention itty bitty thing I've seen in all bank deals when you have less than 20% of downpayment - you cannot RENT such property for at least 3 years. If bank catch you doing that you are required to pay back whole loan at once within 30 days.

My brother who is working in bank, and is earning twice the "average income" AND is buying proprieties to rent and sell said he can't financially go above 3 houses/flats. It max out his credibility, his financial stability and passive income. With 4 flats he would be spending more money than he's earning.

This is the same case as those House flippers, gold diggers and storage wars. They are earning money on selling those dreams not actually doing them.

SZCZERZO KŁY
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    What area has the "can't rent it out for 3 years after buying" clause? I have never heard of that before. – BunnyKnitter Aug 08 '18 at 15:53
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    @SnyperBunny - In the US (according to Wells Fargo), you need mortgage insurance (PMI) on mortgages with less than 20% down-payments. Typically, you can't get approved for PMI on an investment property. https://www.wellsfargo.com/mortgage/buying-a-house/investment-property-loans/ – BobbyScon Aug 08 '18 at 18:21
  • @BobbyScon Interesting. What stops someone from pulling equity out of a house they are already renting out to meet the 20% down on a new house with the goal of renting it out? Would that (legally) get around it? What if that dropped the equity in the "old" property to less than 20%? Would that only become an issue when it came time to refinance the property? – BunnyKnitter Aug 08 '18 at 18:27
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    @SnyperBunny - So many questions! ;-) I don't have all the answers, but once you've met the 20% requirement to release PMI (or not have it), it's only reviewed if you try to refinance. With housing market swings, too many people would be in and out of PMI for that to be manageable. As far as using other equity, that would likely be acknowledged as part of the new loan application. It can probably be done, but I couldn't tell you the specifics. – BobbyScon Aug 08 '18 at 19:18
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    @SnyperBunny To "pull equity out of a house," you have to have equity. Consider if you were trying to buy a $100k house (to make the numbers simple). You need $20k down to avoid PMI, so you need $20k in cash. "Pulling equity out of the old house" is actually the process of getting a loan for $20k, backed by your old house. You can only get that loan if the investors are all content with you adding that lean on the old home. As a general rule, you wont be permitted to take such a loan unless it leaves 20% equity remaining in the old home. – Cort Ammon Aug 08 '18 at 22:58
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    If your previous home was also a $100k home, that means you need to have $40k in equity in the old home to pull this off. $20k to back the loan for this new down payment, and $20k to keep the holder of your existing loan happy that their investment is secure. If you're paying off 40% of a $100k house quickly enough to pull a plan like this off, you don't need the plan. You've already found a way to get rich, with far less risk than this plan offers. – Cort Ammon Aug 08 '18 at 23:00
  • @SnyperBunny This is probably in Poland based on the username. In the Netherlands, it's a bit different, but still most mortgages require permission from the bank to rent and they will require a certain LTV ratio before allowing it. In many European countries, tenants have strong rights and cannot easily be forced out of a property so properties that are rented out fetch less on the market if the bank needs to foreclose, hence the sometimes stronger mortgage restrictions. – Eric Aug 10 '18 at 12:27
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Whenever I learn about some scheme for making money, I always ask myself:

  1. Why aren't they doing this themselves?
  2. Why are they teaching this?

It's likely they're teaching it, and spoiling it, instead of doing it themselves (or founding a business) because the scheme does not work and they make more money teaching than doing.

I always think from this angle even before fully hearing what someone suggests.

With this in mind, I'd dismiss that guy without examining a proposal.

spiralofhope
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    philanthropy, you skeptics just can't get it O:-) – akostadinov Aug 09 '18 at 12:21
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    This is also a great response to MLM (multi-level-marketing schemes). Why are they trying to recruit me to sell a product when they could just be selling it themselves? Recruiting me actually makes more competition for their "business". The reason is they make more money recruiting than they do selling. – stanri Aug 09 '18 at 13:31
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    @Stacey This is an excellent point. I suppose it also reveals a better way to run an MLM scheme.. by making it look like the conned are being recruited as employees. – spiralofhope Aug 13 '18 at 09:19
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It's possible. But a lot of layers of swiss cheese have to align at once (or rather, be aligned by a person with mad skillz).

  • First, you must make reasonably good money - i.e. a highly skilled technical job, or a manager. Can't do this on Walmart income.
  • You must already be content to live a lifestyle well below your income, meaning you are already banking much (half?) of your income. You will need this habit, and cash flow reserve, to cover many glitches and problems that will come up.
  • From the above, it'll really, really help to have some startup cash in the bank. You can only use initial-homeowner incentives once; after that expect to put 20% down on every house unless you can find partners.
  • You must pick an area where house prices and the rental market lend themselves to doing this. You won't be doing it in San Francisco, for instance.
  • You must have a deep understanding of your rental-property market, and again, some places the market is simply against you.
  • You must be skilled at the financial angles of the home-rental business; you should already have developed a pretty complex spreadsheet that lets you drop in home price and market rentals and have it pop up your pretax and post-tax income from that property.
  • You must be highly competent about picking houses with the right combination of very favorable sale price and good fixability. For this, it helps to have a great network of friends or partners, and be a really good sleuth. That's what happens behind the curtain of all those "fixer" shows on HG channel: they have extraordinary resources for finding houses available at lowball prices. You do not.
  • You must be pretty good at fixing up fixer-uppers: either you're handy, family is, or you have great partners. You can't buy a fixer, then muddle around for 9 months crawling through fixing it, or get tripped up with permit or entitlement issues, etc.
  • When you get the 3am "Toilet is leaking" call, you better be able to fix it in 3 hours. Home Depot is closed.
  • You must be competent at selecting tenants. There are tenant sharks who hunt down newbie landlords and exploit their unfamiliarity with tenant law to trick their way in, then refuse to pay rent and force you through the most byzantine eviction process possible. Watch some of the "bad tenant" TV shows on Youtube. There are also tenants who just aren't much good and can do way more damage than the deposit covers. Get one with bad pets, you'll be replacing more than carpets.
  • You must understand landlord-tenant law so you don't do something moronic and cost yourself a ton of money, or give a shark an extra 6 months of free use of the home.
  • You need to know tricks of the trade like "paying your tenant to leave will keep him from kicking out all the drywall".

So yeah, if you poured Robert Allen into a 25-year-old body, gave him a $70k/year software engineering job with good upward path, he'd exactly buy a house a year and be retired at 40. But for you, expensive mistakes can sink you.

Harper - Reinstate Monica
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a video on youtube which has thousands of views

Wow, thousands of views! On a site with 1 billion users! He must really know what he's talking about!

There is rarely a way to make tons of money with no risk. If there was, the market will often arbitrage it until it's back to lower levels. Of course real estate can be profitable, many fortunes have been made from it. But this particular strategy has obvious pitfalls:

  • House prices could crash leaving you underwater.
  • You could overpay for a problem house due to inexperience.
  • You might have trouble finding good tenants, leading to lost rent income and costly repairs.
  • Banks might refuse to give you loans when you already have several mortgages.
  • It is a lot of work to shop for houses, to market rental property, to deal with issues of tenants. It's like a job - it is a job.

In my country (US), banks do not give mortgages unless the interest would be less than 30% of your income. So you would already have trouble buying the first house, unless you start with financial capital. Even if you do get the first mortgage, it will then show up on your credit history. Subsequent loans might be refused simply because you have too many loans out already.

If you did have a lot of capital so as to not require the loans, it might be a bit easier. But if you have the money to buy houses outright, you might as well invest that money in something like the stock market. In the US, stocks return about 7% yearly while real estate is something like 2%.

Ultimately, though, it comes down to personal aptitude. Real estate is a job just like any other job. You can be successful with it if you have the right mix of education, talent and experience. Not everyone is good at judging how underpriced/overpriced houses are, not everyone is good on house maintenance, not everyone is good at dealing with renters. If you do suceed with any house-based scheme, it's probably because you have a knack for it, not because you found out about this guy's one simple trick.

Money Ann
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    Here (France), incoming rent counts as income, so such a scheme does work. There is a delay though, as taxes are paid one year late and income proof relies on tax from previous year, so incoming rent only becomes relevant 2 years after it starts. All in all, 1 house every 3 years is doable and is profitable. Is it a good idea? Well, it's still subject to most of the risks. Might be worth it if you can pull it off while still diversifying. It's more of a "get from rich to richer" scheme than "get from poor to rich" scheme. – spectras Aug 10 '18 at 11:15
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    @spectras in the US, rent is counted towards income as well, however, typically, banks will only count 75% of the rent. Also, each mortgage increases your debt load. Given that the max debt to income ratio is about 50%, you will quickly reach a maximum number of properties that you could finance with conventional loans. The way around this for the budding real estate investor is to start small, then start flipping the properties you have for larger ones which already have tenants leveraging the appreciation in value for downpayment on new loans. – iheanyi Aug 10 '18 at 23:25
  • @spectras another limiting factor is that banks typically require that you have cash reserves to pay all recurring debt costs for up to 6 months. As you can imagine, that means the cash you need on hand keeps growing with each property you buy (or attempt to buy). This makes it harder to sequentially move year to year to buying a new property using just the income from the previous ones. – iheanyi Aug 10 '18 at 23:27
  • @iheanyi thanks, it's interesting to see how banking practices differ from one country to another. The basic principle of debt load applies here too, but the way it is counted (100% of the rent) makes it less of a limiting factor, the 2-year lag usually slows you enough that first house is fully paid before debt load becomes relevant. – spectras Aug 11 '18 at 13:56
  • @spectras The problem is that banks look at total interest payments vs. total income. So even if the loan you are asking would be less than 30% of income, they might refuse because combined with your oustanding loans you would go over 30%. Also usually rent income is mostly offset by the mortgage payments. – Money Ann Aug 13 '18 at 18:30
  • @spectras in your country, homes can be paid off in two years! In the US, the typical loan term is 30 year amortization. 15 years is common for those wanting to be aggressive in paying off their homes, otherwise shorter loans are almost always used when someone if slipping the house and wants to minimize interest paid for the few months the property will pass through their hands. – iheanyi Aug 14 '18 at 14:10
  • @iheanyi > it is around 20 to 30 years here, too. Aggressive is about 12 years (you get massive tax rebates for that duration if you invest to rent out). The thing is mortgage payments are not deduced from your income when evaluating subsequent loan requests. If your first loan gets you to, say 30% debt load, when rents gets counted in your income 2 years later, your debt load suddenly goes down. Not to zero, but enough that, given you plan correctly, you might buy 5 to 6 houses that way. And when you reach the sixth, first is completely paid. – spectras Aug 14 '18 at 15:00
  • @spectras ah, I see (and I should have read your previous comments better!). The two-year is the delay you have in France before the rental income comes online to affect your debt load. – iheanyi Aug 15 '18 at 00:13
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Great idea!

An enterprising individual might recognize the money-making potential of this investment strategy. Since having more capital means being able to buy more properties, more properties means more rent, and more rent means more profit, it would be a good idea to raise as much capital as possible.

Why stop at one house per year? Why be limited by bank credit approvals? This enterprising individual might create an organization and offer a deal to other people: people buy shares in the organization, and that capital is used to buy more real estate. In return the investors receive share of the profits.

By pooling the capital of many individuals, a quite huge sum of capital could be generated. It should be possible to invest not only in homes, but in much larger things, like shopping malls!

It's not a new idea: it's called a real estate investment trust (REIT). They come in all kinds, most likely you can find one for any specific real estate segment you like.

Looking at the historical returns, you'll find while it is possible to turn a profit with this method, it's nothing fantastic. It might make a good component in a diversified portfolio, along with the more usual stocks and bonds.

Phil Frost
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I am not familiar with Denmark but in the US there are a few things that could help make this strategy work though it is by no means "guaranteed-to-work".

  1. You can buy a home on leverage as low as 0% and many people get into their homes with FHA loans at 3.5% down.
  2. Banks generally will count 70% of your rental income into your debt to income ratio to help you qualify for the next home purchase.
  3. Bank can loan up to 10 residential loans(if it is selling the loans Fannie though many banks have their own limit, 4 is popularly repeated). Banks offering portfolio loan (keeping the loan instead of selling to Fannie) can give you as many mortgages as they think you can safely afford. If unable to get a personal mortgage the older mortgages can be refinanced into commercial loans lowering your personal loan count and re-enabling you to buy more.
  4. You don't have to get your loans through banks private citizens can carry the note on your home.

One home a year might be impossible at first but if you set aside the cash flow from your property for the next down payment you will see a compounding effect. You might need to save four years for house 1 and live there for four years to save for house 2 but house 3 will take you three years to save for since you have the cash flow from house 1 accelerating your savings house 4 will take you two years... get enough cash flowing houses and you can be buying a new place as quickly as you are comfortable.

Finding cash flowing houses, picking good tenants, good Property managers, and good contractors is tough. There are lots of places where you can get slowed down or derailed. Its not easy but it is possible.

JaredStroeb
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  • https://www.wellsfargo.com/mortgage/buying-a-house/investment-property-loans/ At least Wells Fargo requires 20% down for an investment property, and they claim your rental income doesn't count until you have 2 years of property management experience. This suggests buying your 2nd house in year 2 or 3 would be difficult as you'd need to qualify for a second mortgage based on your non-rental income only (and have the cash for a 20% down payment). – jbch Aug 10 '18 at 19:26
  • There are many more bank than Wells Fargo. I would recommend talking to smaller local institutions to find a more accommodating lender. – JaredStroeb Aug 13 '18 at 12:39
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Yes, this is a brilliant get rich quick scheme!

Study his plan and his video closely. Then come up with some variations to make your own plan. Produce your own video. Get gullible people to pay you for these videos or the books you sell.

The plan itself, of course, is absurd. Most 20 year olds struggle to come up with a down payment for one house, never mind for another one every year. Owning a rental property is far, far from an easy, guaranteed money-maker. Trust me, I owned a rental property for 10 years. I lost money on it every year. Every. Single. Year.

Sometimes you can't find a tenant and the place sits empty for months. But you still have to pay the mortgage. And while if no one is living in it the utilities will be minimal, they won't be zero -- especially in the winter if the property is someplace cold, you have to pay to keep it to at least a minimal temperature. You have to keep the yard mowed, etc.

Every time you get a new tenant you have to clean the place, usually do a bunch of repainting.

Anything that breaks, you have to get it fixed. If you're reasonably handy and live near the property, maybe you can do it yourself. Otherwise you have to hire someone.

Often tenants will call with nonsense maintenance problems. I had a tenant who complained that the water heater wasn't working. I had to call a plumber to look at it. He found that the knob was set to "low". He turned the knob up. Problem solved. His bill: $200. I don't blame the plumber. He had to drive to the house, figure out that that was the problem, and then after turning the knob hang around long enough to be sure that was it. $200 was a reasonable fee for his time. But.

Sometimes you get a tenant who decides not to pay the rent. So you evict them, right? In my state, theoretically I could evict a tenant with 3 days notice. In practice, they don't leave. So you have to take them to court. The court will schedule a date in 2 to 3 months. If they're not paying the rent you probably win the case easily. Great. Now you have a court order. They still don't leave. With the court order you can get the police to go order them out. They'll get around to that in another month or 2. So it's like 4 or 5 months between when you decide to evict them and when they actually leave. Of course they don't bother to pay the rent in that time. Why should they? You've already started the eviction process. They may decide to trash the place for revenge on you ordering them out.

Some tenants trash the place because they're mad at you for some reason, or just because they're slobs. I had one tenant do $10,000 worth of damage, including trash all over the house about a foot deep that had to be hauled away, feces on the walls, carpet destroyed, light fixtures destroyed, etc.

My point is not that it's impossible to make money as a landlord, but that it's not a guarenteed get rich quick scheme. It requires a specific set of skills like any other business. If you're good at it, I'm sure you can make money. If you're not, you can lose a bundle.

Jay
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This particular scheme (getting houses at a rate of 1 per year) is obviously not feasible for most people, or most people would already be doing it.

I know one scenario which conceivably could work, in a fashion. Not for getting rich, but to structure your financial life. That is, in a nutshell:

  • Try to get any kind of house, flat, etc. as early as possible, paying as much of it as you can (getting as small a loan as possible).
  • It must be one which is rather shabby or in need of repairs, of a kind which you can do cheaply. This means that you need to have the time, know-how, machinery etc. to perform the labour, and that you need to be inclined to actually do it as well.
  • So far, you're simply a random house owner like everybody else (not rich yet, and probably paying a lot to a bank; though a bit less than everybody else, as you got an el-cheapo house).
  • Live in the house, fix/improve it as much as possible, and then be ready to sell it as soon as possible, when the market is such that you can recoup all your investments (and then some); also, at this time you need to have another house lined up to buy; this also needs to be shabby/in need of repairs. Make it so that the difference turns out in a way where you don't pay that much more loans afterwards than before.
  • Rinse, repeat.

With a bit of luck, this works out so that you, at the end of your working life, end up with a very nice house, no more loans to pay, while having been able to afford those rather cheap(sic) houses, although you had to work a lot in your spare time.

With huge luck, you break even before your body is done for, i.e., you may have paid back your loans at some point, and then actual make money from fixing and re-selling the properties in which you live, or eventually get a second house to do the same.

The problem with this is obvious: it takes loads of luck and hard work to actually find suitable houses, then to actually get them (everybody else will, as well), and then to find a buyer when you need to upgrade (say, when your family grows). Also, many people find out that fixing/repairing houses, especially if you live in them, is very hard and tiring work, and you can really miscalculate costs, thus demolishing all your plans easily...

JTP - Apologise to Monica
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AnoE
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  • Works a lot better if you save up to afford it without the loan. You need to compare monthly rent to interest on that loan and when you'd pay it off. Most people are better off not borrowing. – JKreft Aug 09 '18 at 13:12
  • @JKreft, I have added half a sentence to that affect to the answer. – AnoE Aug 09 '18 at 13:21
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    Unless you really like home repair (enough that you would do it as a hobby without pay), you could just get a second job instead... – user3067860 Aug 09 '18 at 13:32
  • @user3067860, yes, that is what I am pointing out in the last paragraph about why this scenario is a fallacy for most people. – AnoE Aug 09 '18 at 14:06
  • One of my employees has cut their hours way back in the last few years, because they've finally started making a profit with a modified version of this plan. Instead of homes, he buys run-down mobile and manufactured homes, fixes them up, sells (mostly) or rents (I think about 3 now) them, and buys another "el-cheapo" one for himself. So that's another option, with a lower barrier to start – user73687 Aug 09 '18 at 20:32