Author Topic: Basic questions alert from prospective rental investor!!!  (Read 2522 times)

LadyMustache

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Basic questions alert from prospective rental investor!!!
« on: November 15, 2014, 05:35:18 PM »

My DH and I are beginning to look into the option of investing in a rental property. We are thinking of buying a property in our town for in the region of $75-100k, which would give us $800-$1200 per month in rent.  In theory, we could buy this outright, as we have around $175k in cash savings. We also, however, owe $390k on our own home, which is worth around $700k, so want to keep some money as backup ( prob in stocks to diversify?) in case DH loses his job/disaster strikes.

We would be eligible to take out a second mortgage for the rental based on DH's salary.

My question is: would it be sound investment strategy to buy the house/apartment outright? Or is that just crazy? Should we take out a mortgage so we have more cash at the ready? How much do you typically put down as a downpayment?  If you were us, would you be putting down payments on two or three properties, to maximize potential gain (for instance, we could buy two $100k rentals with $50k down on each). I know these are basic questions, but I'd really appreciate some opinions and to know how others would approach this.

Thank you.

daverobev

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Re: Basic questions alert from prospective rental investor!!!
« Reply #1 on: November 15, 2014, 06:33:21 PM »
Where are you. $800 on a $75k property is not a good investment, at all. Crunch the numbers.

Look into a passive investing portfolio, and find somewhere that a $75k property will rent for $1150+.

Disaster strikes - that's your emergency fund.

Getting a 30 year mortgage, even 15 year, at a good rate on something that is cashflowing is a great idea, though.

LadyMustache

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Re: Basic questions alert from prospective rental investor!!!
« Reply #2 on: November 15, 2014, 06:55:03 PM »
Thanks for the advice, daverobev. We are in The Triangle, NC. I definitely do need to get number-crunching! I was thinking $800 on a $75 was doable, as it exceeds to 1% rule, just about! Or have I misunderstood the principle?

Yes, going to try to wrap my head around the passive income. Im a total beginner on that too. I'm thinking maybe getting a 40-50% mortgage and investing the rest (somewhere!) should keep bases covered. At the moment our savings are stuck in our checking and savings account doing nothing!

Paul der Krake

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Re: Basic questions alert from prospective rental investor!!!
« Reply #3 on: November 15, 2014, 07:11:40 PM »
I'm also looking for those elusive properties that meet or are close to meeting the various percentage rules in the Triangle. I'm sure they exist, but I haven't seen one yet.

LadyMustache

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Re: Basic questions alert from prospective rental investor!!!
« Reply #4 on: November 15, 2014, 07:18:22 PM »
Oh-oh, and there was me thinking Durham was the answer to my FI dreams!

Paul der Krake

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Re: Basic questions alert from prospective rental investor!!!
« Reply #5 on: November 15, 2014, 07:28:05 PM »
Well, I have spent less than 5 hours actually researching properties so far, and by that I mean browsing Zillow for rough price estimates and Craigslist for rought rent estimates, and I am a complete noob as well. But if you come to our next Triangle mustachian meetup (whenever that may be), there's someone there who's done very well dabbling into Durham real estate, so it definitely can be done.

This probably isn't the thread for this, but I would love to hear what you find out in your own research, because I am starting to suspect that I'm not doing this very well.

LadyMustache

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Re: Basic questions alert from prospective rental investor!!!
« Reply #6 on: November 15, 2014, 07:35:12 PM »
Sounds like we are at about the same point in our investigations. I'm focusing on CH-Carrboro and Durham. Going to meet our realtor who has several rental properties and will feed back to you then. I half wonder if the rents are unrealistically low at the moment as these are the properties that missed the start of the UNC/Duke university year/were unable to find tenants and so the landlords drop the rent to avoid leaving the property empty over winter. That's what I am hoping anyway!

SwordGuy

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Re: Basic questions alert from prospective rental investor!!!
« Reply #7 on: November 15, 2014, 09:23:03 PM »
Thanks for the advice, daverobev. We are in The Triangle, NC. I definitely do need to get number-crunching! I was thinking $800 on a $75 was doable, as it exceeds to 1% rule, just about! Or have I misunderstood the principle?

When I've done the calcs on a 30 yr mortgage, the PITIPM (Principal-Interest-Taxes-Insurance-Property Manager) takes up most of the 1%.  There's not much left for anything else, profits or maintenance.  Maybe I'm doing it wrong, but 1% doesn't seem to be a money maker.  As long as nothing breaks all is well.   Maybe I'm doing it wrong, but that's what I've found.

I aim for rents at 2% but that's hard to find.  1.5 to 1.75% is more likely where I live.  I'm not ready to branch out to another area farther away yet.