I am actually buying the buildings, it is me only, not part of any investment group. My first "rental" home was forced upon me, because it was my house I bought in 2005 that now I am upside down on. So I was forced with the decision of either short-selling/foreclosing on it, and ruining my credit, or renting it, and I chose the latter route. The amount I rent it for *almost* makes up for the mortgage + taxes, but I'm still losing a few thousand a year on the house.
I have three other homes I have bought for rental purposes. The first two I put 50% down, and have 15-year mortgages out on. The last one I purchased all cash. Each of the homes nets me somewhere between $1 - $1.5k per month, depending on the amount of repairs needed after the tenants move out. For those 3 homes, all three were distressed properties, but I was very picky when I purchased, and none of them needed any serious repairs.
I initially managed my first two properties by myself, but with the additional two homes I have contracted with a management company that takes 6% off the top. This definitely cuts into profits, and if I was retired or had more time, I would not utilize them, but my businesses take a lot out of me, so I went this route. They do provide insurance coverage so if someone is a dead beat and doesn't pay, they go after them, not me, and they also will pay the full rent in lieu of the tenant. That has not been an issue yet, thankfully, but you are right, that is always the risk. All of the homes are in my city, mainly because I know the market here very well. I have been tempted many times in buying homes in Las Vegas, for example, since homes there are dirt cheap, but I do not know that area very well and I am afraid of maybe buying in the wrong zip code and also the difficulty dealing with tenants in another state, although I do realize that a management company could help mitigate that.
Finally I have a commercial building, my office is in it, I occupy maybe 25% of the building, and I rent out the other 75%. The building is currently 100% occupied. This is the most shaky investment, and honestly I don't know if I would do it again, but somehow I got talked into building a bigger building than I originally had planned =) So far things are going very well, I am making a good return on my building, but the problem with commercial that I see is that today's hot, trendy spot could turn into tomorrow's bad neighborhood graveyard. So while my building is currently in the best part of town, who knows maybe 10 years from now the business center of the city could move away and I will be in a less desirable area. The other issue is I only put 30% down on the property with a 30-year mortgage....which is longer than my planned retirement (I plan to retire in about 20 years). So hopefully the property will still be desirable at that time. The way the mortgage and rent works out, if the building is even 40-50% occupied I will still be breaking even/making money.
Real estate definitely requires a larger initial capital investment, at least the way I am doing it. Of course I don't need to put as much money down, however I feel that exposes me to more risk down the line if I have a bunch of long term mortgages I cannot pay down. Since I do not plan on selling these homes any time soon, I am letting the rental income pay down the mortgage, while (hopefully) building equity at the same time. While the market can certainly nose-dive, homes in my area are at historic lows, and I just don't see them going down much more, if they do. Recently the housing market seems to be trending upward, which is a good sign for the properties I already have, but bad for further expansion. Currently homes in my neighborhood are selling days after being listed, and I haven't been able to do my due diligence on them before they get snatched up. So it's not looking good this year for me to buy another property unless I'm willing to buy it sight-unseen or some bullshit like that.
Finally, as always, diversity is the key, I know you expound this and I'm preaching to the choir, but for other readers out there, it's just something I've been more emphasis in than the market. I would say in the past 4 years my investments have been 50% real estate, 25% stock market, 25% gold/silver. The prior 4 years it was like 70% stock market, 20% real estate, 10% gold/silver.
My plan long-term is to own around 10-20 properties and live off that income when I retire.
