this post was submitted on 02 Oct 2023
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It really depends on the nature of the rental and your area. If instead of building a house you build 4 closely stacked duplexes and charged each one double what the mortgage would be you'd definitely make money, but you'd also be an extortionate leech. In my area someone built 4 nice duplexes on a double lot (probably around 1.5 acres) and is now renting them at $1800 each. The land was probably less than $55k and the cost of construction was likely less than $1 mil. At 5% interest on a 30 year loan their monthly payment would be $5,600, but they're bringing in $14,400 per month.
$1800 for rent is an extortionate price in my area (it's big city apartment rental prices, with a pool and gym), even after interest rates went up.
On the other hand, I knew a couple who were landlords for nearly 20 years. They rarely raised the rents and even in 2022 they were still charging <$1000 per month for a full house because that paid the costs and for them it was an investment, not a source of income.
They finally sold their rental homes and made about $70k over what they originally paid on each house. Doing the math that comes out to be a roughly 8.5% annual percentage return without counting the rent gained each month. That's a fairly solid investment without being a sucky person.
My former landlord avoided increasing rent for as long as he could but eventually he was just in red and had to do it.
Needs a small loan of a million dollars
It literally is no problem if you already have assets to use as collateral. The problem is that most people don't.
This is the answer, literally this is what millionaires have been doing for ages. It's just unique that the COVID era interest rates were so low that it made it so that 100-thousand-aires could do what millionaires had already been doing.
Well for a couple reasons.
For a while between 2020 and 2022, if you had your home paid for, you could take a mortgage out on that property and invest that money and make more money on the return on investment than the payment for the mortgage and the taxes owed on your profits. That's how low the interest rates were for a while. I have a coworker who refinanced his house for 2% on a 30 year fixed rate, inflation is generally higher than his interest rate. Doing that sort of thing, taking a loan out on one house to invest with, is stupidly speculative but I wouldn't be surprised if people did it.