OP also fails to mention the need for serious back up capital if you are going to be a small scale real estate investor. Not only can it be tough to come up with that much cash, but then you basically have a lot of money sitting in a very low-yield situation because it needs to be extremely liquid so that if 3 of your 5 houses are empty for 5 months, you can afford the $15,000 of lost income.
Likewise, you need enough to cover expenses. As a servicemember, you are almost certainly going to need to use a property manager because you'll be in San Diego or Japan while your properties are in Florida and D.C. That's typically 10% off the top. And then there are repairs (says the girl who bought a new refrigerator and paid for a service call last month, for a property thousands of miles away)--another thing you need to make sure you have sufficient funds to cover.
So you now have all that money sitting in a savings account or rolling TBills or mutual funds, earning 2%, when, if you had other investments, you could be putting that money to work in much more efficient ways. So even if the properties are earning you a modest monthly profit, you have to subtract the lost opportunity cost of the money you need to hold in reserves if you are going to invest in rental properties. Suddenly the figures aren't quite as pretty.
Because if you don't have sufficient funds held in reserve, then it's pretty easy for you to end up like so many Americans, who thought real estate was just dandy when they were raking in 20% annual appreciation rates, but who suddenly cry poor and point fingers at the mean ol' banks who actually expect them to make good on their word to pay back loans, when they are no longer seeing their house values double and they can't rent for anywhere near the mortgage (never mind property taxes, insurance, HOAs, etc.) because every other person who can't afford his house is flooding the market with rentals.
I think the OP does a *huge* disservice to anyone considering this route because it glosses over or fails entirely to mention a lot of the potential shortfalls. I'm not against RE investing (currently own 2 properties and live in neither of them), but there is certainly a lot of risk. All it takes is for a place to sit empty for 6 months, or even for rental rats to fall and you 3 houses to suddenly get $400/mo less in rent, and you can be seriously screwed, especially if you aren't prepared for that. The OP sounds eerily similar to all the people 8 years ago singing the praises of the 5 year adjustable ARM. Get a mortgage for only $400/mo! For only $400, you can buy a house for $400,000 let it appreciate for 5 years, and sell for $550,000 before the adjustable period even expires! It's easy money! You'd be crazy not to do this! 20 year fixed rates are for suckers--it's throwing away money! And we all know how that turned out.
Likewise, you need enough to cover expenses. As a servicemember, you are almost certainly going to need to use a property manager because you'll be in San Diego or Japan while your properties are in Florida and D.C. That's typically 10% off the top. And then there are repairs (says the girl who bought a new refrigerator and paid for a service call last month, for a property thousands of miles away)--another thing you need to make sure you have sufficient funds to cover.
So you now have all that money sitting in a savings account or rolling TBills or mutual funds, earning 2%, when, if you had other investments, you could be putting that money to work in much more efficient ways. So even if the properties are earning you a modest monthly profit, you have to subtract the lost opportunity cost of the money you need to hold in reserves if you are going to invest in rental properties. Suddenly the figures aren't quite as pretty.
Because if you don't have sufficient funds held in reserve, then it's pretty easy for you to end up like so many Americans, who thought real estate was just dandy when they were raking in 20% annual appreciation rates, but who suddenly cry poor and point fingers at the mean ol' banks who actually expect them to make good on their word to pay back loans, when they are no longer seeing their house values double and they can't rent for anywhere near the mortgage (never mind property taxes, insurance, HOAs, etc.) because every other person who can't afford his house is flooding the market with rentals.
I think the OP does a *huge* disservice to anyone considering this route because it glosses over or fails entirely to mention a lot of the potential shortfalls. I'm not against RE investing (currently own 2 properties and live in neither of them), but there is certainly a lot of risk. All it takes is for a place to sit empty for 6 months, or even for rental rats to fall and you 3 houses to suddenly get $400/mo less in rent, and you can be seriously screwed, especially if you aren't prepared for that. The OP sounds eerily similar to all the people 8 years ago singing the praises of the 5 year adjustable ARM. Get a mortgage for only $400/mo! For only $400, you can buy a house for $400,000 let it appreciate for 5 years, and sell for $550,000 before the adjustable period even expires! It's easy money! You'd be crazy not to do this! 20 year fixed rates are for suckers--it's throwing away money! And we all know how that turned out.
