Rental Business - 2007 post

I work for a multinational company. I get a nice base salary, and bonuses if I work really hard, and if the company has a good year. Bad year for the company? No bonus no matter how hard I work. Do get that base salary though, presuming it wasn’t SO bad a year that I got fired. Nice medical, dental, 401K, and pension benefits to. Cool to be well employed.

But what happens when that ends?

Last year, my wife and I decided to take a 2nd mortgage out against the equity in our house and use those funds to buy rental properties. About a year later, we have (6), and MIGHT be able to do one more.

Why rental properties? Well… we typically finance them with a 75% primary mortgage, a 15% 2nd mortgage, and 10% down (from our Home Equity Loan). All the mortgages are fixed rates, and because of my day job, we are getting pretty good fixed rates at that. So far, we have been able to rent the units within a month or two of acquiring them, and manage to get enough rent to pay the mortgage and Home Equity Loan payments – so we are extended, but have enough cash flow that the business is more-or-less covering its expenses.

Over time, rent will likely go up, but our expenses are relatively fixed. The higher the inflation rate, the faster these units will become profitable – they are basically inflation proof. We are in deep ca ca if we enter a period of deflation, or if the economy gets so bad, that people losing their homes to foreclosure become homeless rather than renters. If the economy is great, our business profit potential suffers – until some of those smaller loans get paid off, after which the company will simply be less profitable, but should still return some profit.

Alas, there is no free lunch. We are finding each unit takes about 4 hours a month in effort to maintain. Because of that, we plan on maxing out around 10 homes. More than that and the demand would impact my day job, and thats not acceptable.

Still, in the end, we hope these units will make a nice supplimental income for us when I do retire in 15 or so years. Having such an income stream will definetly make retirement a lot easier financially.