Should I buy a rental house?

[coclimber]

Hi everyone! I am a 27 year old high school teacher. I live in the Denver area, and I am interested in purchasing a house to rent out in order to diversify my investments. I can not afford a house in the Denver area at this time, so I am considering buying something in Grand Junction. I believe that I am in a good position to buy am investment property because I currently have low housing expenses. I am currently paying $200 in rent per month, and when that runs out in a year or so I will live in my camper.

I don't have any debt and I have about 33k in savings and 62k in Betterment.

I am interested in buying a rental property for 130-200k. Would this be a good investment, or would I be better off keeping my money in betterment? 

Thanks!

[robartsd]

In my opinion you have too little cash for rental housing investing. For conventional lending you need 20-25% down payment for investment property and the property prices you anticipate investing in would take up all your savings. Your rental housing business will need a bit of a cash buffer for vacancies and repairs. Your stated purpose for wanting to buy rental housing is to "diversify" but your exposure to real estate would become more than 100% of your total investments - this is not diversifying.

[FinanceFam]

In my opinion you have too little cash for rental housing investing. For conventional lending you need 20-25% down payment for investment property and the property prices you anticipate investing in would take up all your savings. Your rental housing business will need a bit of a cash buffer for vacancies and repairs. Your stated purpose for wanting to buy rental housing is to "diversify" but your exposure to real estate would become more than 100% of your total investments - this is not diversifying.

I'll second everything robartsd said above. It seems like priority 1 should be amassing more in the way of assets. Coming up with 40-50k just for a downpayment would represent almost 50%of your assets. Also at that point you would have a negative net worth as the rental liability at 105k would be twice as much as the remaining 50k in other assets you'd have left. Also- though it sounds like a very low cost area, certain things like a new roof, plumbing issues, etc aren't dramatically cheaper so that 50k could be put at risk pretty quickly if something goes wrong. Aside from these points, it seems kind of backwards to me to own rental RE before owning your primary residence. There are myriad benefits to owner occupancy that you won't get with a rental.

I understand the desire to dive into RE and become a landlord ASAP (I have been there, truly) but I'd step back and build up some assets before taking that dive. You'll sleep so much better at night knowing you have the safety of some cushion behind you.