Hey guys,
Quick question to throw out there: are there a lot of people out there who drop all cash on "investment" properties, either paying it off in full or to where only a small loan is taken, with the intent of renting these properties out for the cashflow (also thinking it's a great investment)?
Background: our upstairs neighbors recently moved to NorCal but purchased the upstairs unit in 2017 for $635k and are renting it for $2900/mo. Prior to moving into that upstairs unit, they had come from another condo down the street same situation - purchased it, lived there, then held to rent. They are young and the wife has been in and out of jobs (working from 2010-2014 low-level 'coordinator' assistant type jobs, ad then going back to school for 4 years to get into software dev). The husband has been working since 2012 (probably with a starting salary of around $60k and now I'm guessing into the $100-150ks if not maybe a little more). So something's not adding up - I don't see how they could have taken a standard 30yr mortgage out especially with TWO properties like this and the income they have. The situation here is a little different from the context of the question, since in this case they lived in the property before renting out, so I guess I'd also ask if there are a lot of people who also do this (live in for a few years, then hold to keep and rent for "investment" purposes). I honestly don't know how common this is or if *most* people just prefer to sell and roll the funds into another home (per section 121)
My theory is that one or both of their parents have gifted a lot of cash to them which helped either pay those properties off mostly or in full, and now they are holding both places and collecting rents on them.
Not sure if they bought another place up in NorCal or not but considering how cost-prohibitive it is up there, my initial guess is not and that they're 'leveraging' the rents they're collecting down here to either pay for or offset the cost of living up there.
At first, I though, well yes, I do that. I buy rentals all cash because they are sold cash only, there is no way around and no bank will give me any money for those at the time of the purchase, and I rent them for cashflow.
But then I read further and wonder, what the hell are you asking. Could people afford doing whatever they are doing or are they selling drugs and pretend they are making money from rentals. Well, I will bring my example again, if anyone would bother to think how can I afford a house in my high end neighborhood after being divorced (no alimony or child support) with 3 dependents and on my tiny salary, yep that is very weird (I assume people don't bother because they think I get shit load of money from my ex and they feel better about themselves). But I not only can afford my primary residence, I also have several rentals bought with cash. That should be a total shock, especially if you count only my salary. And I can assure you, I don't sell drugs, and I can show my spreadsheets that have boring calculations of all my expenses and all my income for the past 6 years. It's pretty boring and the only conclusion you can draw from them, is that one dollar bill eventually accumulates to 100 dollars; 100 dollar bills to 1,000 dollars and so on. Ah, and compound interest rocks, it's way more powerful than people can imagine.
And I often wonder why more people aren't doing what I do? Why they struggle and wonder how others can afford buying with cash, and why things add up for others, but not for them? That's because they are too lazy to change their lifestyles, too scared to figure out that they are the problem of their own success, and they are afraid to fail. Well, maybe others reasons too, like they are bad at math and spreadsheets in general.
I'm sure there are many other mustachians who do the same, buy with cash, live beyond their means, invest in money producing properties, retire early, and wonder what is wrong with the rest of the world, why the rest of the world cannot add dollar bills and get $100, $1000, $10000, $100000, $635K?