While many investors understand the basic pros and cons of owning multiple properties, few consider the financial advantage of controlling (without owning) multiple properties. For most people, it’s counterintuitive that merely controlling properties is financially superior to outright ownership.
The Pro Side of the Pros and Cons of Owning Multiple Properties
The first positive that most investors think about when it comes to the pros and cons of owning multiple properties is having rights to all of the income as well as the appreciation in value. That’s great when the properties are throwing off cash by the fist full. If properties were always positive cash flow and risk-free, everyone would want to own multiple properties. The fact is that owning property isn’t risk-free. We all got a clear picture of this when the market tanked between 2008 and 2011. There is definitely risk to property ownership.
For that reason, I prefer controlling properties without owning them so that I can minimize my financial risk. That's why I specifically prefer the lease option or the sandwich lease option that I frequently write about. However, let's take a closer look at the pros and cons of owning multiple properties.
The Con Side of the Pros and Cons of Owning Multiple Properties
For many people, the biggest con side of the pros and cons of owning multiple properties is placing the vast amount of your assets in one, two, three, or even more properties that you are responsible for as an individual. No matter if you make money, lose money, or come into a liability, it's your name that is on the title. If you don't have your business properly structured as a LLC or corporation, one single mistake can cost you all of your investments and possibly your personal wealth.
For that reason and many others, I'm a firm believer in lease options. Lease options and sandwich lease options enable you to control and profit from more properties but invest less of your own money, while also limiting your liability. When it comes to the pros and cons of owning multiple properties, it seems intuitive to me that controlling multiple properties with lease options is the better answer. Properly structured, the lease agreements will bring in reliable positive cash flow until the end buyer delivers a decent profit from the sale in a year or so.
Pros and Cons of Owning Multiple Properties – A Financial Example
If you're investing for the long term, the biggest benefit of owning properties is the direct cash flow that you receive each month. Before investing, it's vital that you perform your due diligence to be sure that the cash flow will be positive. When it comes to the pros and cons of owning multiple properties, one of the major cons is that you have to make a significant down payment in the beginning. If it’s a $100,000 house, the down payment might be $5,000 or it might be $20,000.
That alone is going to significantly hamper your ability to acquire multiple properties. On the other hand, a lease option only requires an option fee. Often as low as a few hundred dollars. That same $5,000 to $20,000 investment allows you to control many more houses, much more quickly.
If you’re the owner with a three-bedroom home that rents for $1,000 per month, you'll bring in $12,000 per year in income. However, you are going to have expenses. You might have a $700 mortgage that only leaves you with $300 per month in positive income. On top of the mortgage, you're going to have property taxes and insurance that cuts into the positive cash flow. As the property owner, you may only see $150 in positive monthly cash flow (not to mention maintenance and repairs costs).
With multiple lease options, you’ll be able to control 8 or 10 properties for the same investment. Your positive cash flow could be north of $1,500. A lease option purchase also entitles you to the appreciation in value during the option period. Selling the homes for an appreciated value could add another $50,000 to your bank account in a year.
By Wendy Patton
For more than 30 years, I've used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It's because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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