Forum - Banjo Ben Clark

Any rental property investors here?

#1

This post has nothing to do with music.

My wife and I just finished watching the Money Revealed docu-series and took interest in 2 of the strategies covered. The first was the concept of renters as your employees. I’d never heard it put that way, but I like it a lot. So we started watching videos and listening to podcasts from RPCInvest.com and learned about the various ways you make money on rental property.

The second idea I liked was overfunding specific types of whole life insurance policies to, in effect, be your own bank. Apparently, when set up properly, this method allows you to borrow against money that’s already yours, and you get to keep the interest you pay.

Putting these 2 methods together seems like a huge potential for wealth building. Just curious if anyone here is doing either, and if so, would you like to share some of your experiences?

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#2

I can relate Mark. Observing other friends, we always thought the business of renting property seemed to be an interesting way of generating ‘passive’ income, but ironically we got into it somewhat by necessity. About 10-years ago I took an Engineering job in Waterloo, Iowa, but was forced to rent out our farm & house back home in Michigan. That was a tough decision and a scary one for us, but it’s turned out great. Renting not only paid off our farm & house, but we were able to buy the adjoining farm by rolling the rent cash-flow back into the operation. We are hoping to move back in a year or two and will sell our house here in Iowa, so will have some equity take-out there. In short, even though at first we were kind of forced into renting , in the end, we were surprised at the wealth-building potential of it. We’ll be moving back home to a much improved financial position where I hope to be practicing my guitar & banjo about 20-hours / day. Happy Picking (and Renting :wink: )

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#3

I’d just say tread softly until you’ve done your due diligence. I’ve made my share of investments in things I thought would make me money only to be disappointed.

Maybe Dave Ramsey has blogged or commented about this, but I didn’t find anything on a google search.

I trust Dave on all matters financial. He’s very much a straight shooter with no agenda.

He owns rental properties, and says it is a full time job. His biggest issues are his stuff getting broken, and dealing with non payers.

One important point he makes is that he never raises his voice even when having to evict people. That would be tough.

With that said, I hope you’re onto something. All the best in your endeavor. :+1:

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#4

That’s what management companies are for. I’m happy to pay someone else to take care of all of that non-fun stuff for me. They screen potential renters, get those 3am phone calls that a toilet is broken, collect payments… it’s totally worth it to me.

I’ve listened to Dave Ramsey a few times. What I’ve found is that I sort of naturally live by his advice. The only thing I have a note on is my house, and I could pay it off if I really wanted to, but my mortgage is at 2.75%, so why bother?

Everything I’m seeing shows huge upside potential for rental properties IF you play your cards right. I’m thinking that, for myself, the way to go might be to seek out homes in areas I’m familiar with, good schools, taxes aren’t crazy, hasn’t flooded, things I’d look for if I were moving in to it myself, fairly recent build, built by a respected builder, and build a template that every property has to meet.

If you play it smart, you make money 4 ways on rentals.
1 - the excessive cash you have after the mortgage, insurance, and taxes (that’s your cash flow.)
2 - the principle payment made on the home with each mortgage.
3 - The tax benefits from writing off the mortgage interest and the 27.5 year depreciation on the property.
4 - the increased value of the home (added equity.)

The more I research this, the more it seems like a good deal, so I’m just trying to find someone that’s tried this approach and pick their brain.

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#5

That’s a great story! I kinda got involved in a similar story back in 2000 when I bought a piece of property that came with a mobile home with a renter already in it. They were only paying $175 a month, but it was $175 free money because I told them I didn’t want to be a landlord, so anything that went wrong with the house was on them.

They decided to move out, and rather than rent it out again, I sold the mobile home. I got $2500 for it, but then I figured it up and realized I kinda screwed myself. I could have been charging way more for rent if I’d wanted to risk taking care of toilets and other handyman work, or paying a management company to do that.

Young and dumb.

Thanks for sharing your story!

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#6

Two great methods indeed Mark. The second method “Whole Life Insurance” is brilliant and should be made aware of by everyone, the younger the better. My Wife and I never realized this until too late in life after blindly paying “Term” all our lives through our employers. The first method of property rentals has worked well for us over the years. Not great, but ok enough so that we were able to take early retirements from our California jobs. Ten years before our retirement we was somehow able to purchase a second home on the Oregon Coast. We used a reputable management company to keep it booked, cleaned, etc. Revenue generated easily covered mortgage, property tax, repairs etc. That was 26 years ago. Since then we have learned a lot, lost a lot, but always earned enough to make it work. Nothing was really planned out like one should do a business plan, it just somehow happened and we just flew by the seats of our pants and it’s worked out so far. We have always owned at least two homes somewhere in the country that pay for themselves, at one point three. Not saying it’s been easy peasy or headache free, just another way of living. Errg! that Life Insurance mistake was a killer! Anyways, yeah, sounds like you’ve done your research and ready to launch! Good Luck, excited for ya!

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#7

Sweet! Thanks for the words of encouragement, Butch! You always hear 3rd hand stories of the rental property that got turned into a meth lab or some crazy thing. So far, all of the 1st hand accounts being told to me are positive.

One story that got me really excited was the woman who was barely getting any cash flow out of a property, but she had a lot of equity in it. She sold that property, took the equity and used it as down payments on 3 better properties. She went from a cash flow of < $300 / month to >$1300!

It’s all a numbers game, which I like. I just don’t know if I’m currently suffering from analysis paralysis or if the numbers really are suggesting that we’re due for a pretty big bust in the housing market.

#8

Your welcome Mark! Yeah for sure housing market crashes are severe. Hit us so hard in 2006 it wasn’t funny. But you know what, they always come back. Just have to weather the drought a bit longer. Building the equity then selling and moving on is what we’ve always done. I say go for it dude! While your still young…! :smiley:

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#9

If the market busts don’t prices go down? If so that’d be a good time to buy and when the market goes up again it’ll increase in value

#10

Exactly, Gunnar. That increase in value is called equity. People that position themselves to be able to take advantage of market fluctuations like a housing bust often end up very wealthy. It takes discipline, though. You have to be willing to save money rather than spend it on fun stuff.

The book Rich Dad Poor Dad was my introduction to the concept of using debt to get rich. Here’s an example.

Say you have $50,000. You could buy yourself a car, but you’d be out your money. Instead, use that $50k to put down on a house and then rent it out. There’s a good chance that the excess you get from the rental will pay for the loan on that car you wanted, so now you have a house AND a car, and someone else is buying both of them for you. :grin:

Yes, there’s risk, so you have to come up with a formula for screening renters, evaluating properties before you buy, monitoring your ROI on properties you own, etc, to mitigate those risks. You can’t get rich without taking risk. In my life, I’ve always been grateful I stepped outside my comfort zone.

#11

Outstanding book. I read it too. The $50,000 car example is a good one. Think of your dollars as “employees” . How can I put them to work for me? In the end, creating a ‘passive’ income stream or ROI. Robert Kiyosaki does a great job laying this concept out. Wish Dave Ramsey might devote a chapter on this, but maybe out of scope for his FPU.

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#12

I’ve read about some of these ideas in a book called what ever happened to penny candy? It’s a book about economics, and it talks a bit about these concepts

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#13

How can I make money picking Banjo?

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#14

LOL! Well, I guess you invest a bunch of money into an online infrastructure and then get thousands of people all over the world to pay you to teach them to play. :laughing::stuck_out_tongue_winking_eye::crazy_face:

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#15

Get a job with Ricky Skaggs and Kentucky thunder!

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#16

I highly advise AGAINST investing in programmers to build what you want them to build! Haha

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#17

I tried investing my money with the bank when interest rates were high. Then the financial markets crashed and I get next to nothing in interests these days although on the plus side I did manage to pay off my mortgage earlier that expected. Maybe you could buy up a bunch of high end banjo’s and sell them on at a profit. I do believe Jim Mills did just that. Sorry I can’t be of more help.

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#18

You could be a rental banjo investor…

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#19

Great suggestion. Ross Nickerson has an arrangement with Gold Tone to supply rental banjo’s on his Banjo Cruises.

#20

I’ve been studying real estate investing a lot lately and hope to eventually make it a career. A great strategy I’ve heard of and that I plan to do myself is something called house hacking. It involves duplexes, triplexes, and fourplexes. A duplex is a house with two units, a triplex has three, and so on. Say you buy a triplex. Then you live in one of the units and rent out the other two. You don’t pay rent yourself because you own the property. Say the rent for the other two units are $800 per unit a month. That’s $1,600 dollars a month in cashflow. Then, say you pay $1,300 a month for the mortgage. That’s $300 in free money for you to put towards saving up for another property. You’re basically being paid to live for free.

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