Jeff, they didn’t get any million dollar loans from their parents.
They lived in a very small apartment and drove one inexpensive car, didn’t eat out much, and didn’t buy a whole lot of “stuff” like most Americans do.
Because of that, they kept their spending below $20,000 a year.
They made $70,000 to $80,000 a year for their base salaried income. They worked extra jobs and made another $30,000 to $40,000 a year from that.
That gives them, after taxes, somewhere around $50,000 to $75,000 a year to invest. Plus, of course, every time they buy a rental property and rent it out, the profits could be plowed back into the mortgage to pay if off early.
It truly was as simple as:
a) Don’t spend very much.
b) Work extra hard.
c) Invest the surplus into something that makes money on a regular basis.
I ran the numbers thru a mortgage calculator. I assumed a 30 year fixed rate mortgage at 6%. (Rates are a bit higher for rental property than for a person’s primary home.) A $100,000 house rented for $1,000 a month, with property taxes and insurance similar to my own area, would net about $250 a month after subtracting 10% for property management, $100 a month (each) for property tax and insurance, and principal and insurance. With a 25% down payment, and that $250 a month paid extra onto the mortgage, the mortgage would be paid off in 12 years. If they got a better deal than the full retail price of $100,000, it would be paid off sooner. After the house is paid off, they would be making an additional $450 a month.
That’s greatly simplified, as I left out income taxes, depreciation, vacancy and repair funds, repairs, new tenant fees, etc. One reason I left them out is because they were saving so very much of their salary and second job income that they could easily pay for any needed repairs out of their monthly cash flow. And, of course, the profits from the couple of house flips that they did, if applied to the down payment or mortgage of a rental would mean the property would be paid off that much faster.
As for me, I don’t buy homes at the full retail price any more. I buy them for much less. For example, our first rental property was an $80,000 home that we bought for $38,400. After repairs the house cost about $45,000. I rent that one out for $765 a month. Our second rental was $37,000 and required about $13,000 in repairs, for a cost of ownership of $50,000. It’s also an $80,000 house and it rents for $850.
I would suggest two books for those who are interested in learning more about real estate investing:
- https://www.amazon.com/Estate-Investor-Financial-Measures-Updated/dp/1259586189/ref=sr_1_1?ie=UTF8&qid=1486220569&sr=8-1&keywords=CASH+FLOW+REAL+ESTATE This book will tell you how to run the numbers and real estate is most definitely a numbers business.
- https://www.amazon.com/Millionaire-Real-Estate-Investor/dp/0071446370/ref=sr_1_1?ie=UTF8&qid=1486244788&sr=8-1&keywords=millionaire+real+estate+investor This book covers how to find properties and how to finance them. There are a lot more options out there than the standard residential consumer mortgage.
I hope this answers some of your questions and encourages you to go learn more.