Buying a rental / Property Manager / How much to put down

[West996]

First post here, hello friends,

(Posting from Canada)

Here is the skinny. I'm selling my house and I should come out of it with about 150k liquid cash. This the most money I have ever had, before this, the most money I have had in the bank at any given time is 10-15k.

I thought about throwing it all into some type of index fund like the mustache recommends but I also remember the calculations he posted about renting and I may have an opportunity there too.

My soon to be wife's parents are real estate agents and property managers. They have about 4 properties in a town about 3 hours away from us where the prices are not too crazy. They have also renovated a few of the properties they now rent themselves. They have expressed some interest in helping us out here and I believe they would be willing to keep an eye out for a good property to turn into a student rental. (There is a student wait list for the properties they already own.)

I make about 50k a year. As my first major investment is this a good one?

Should I put the whole 150k down on the house to reduce the mortgage as much as possible or should I put just the 20% down and still invest the rest?

[srad]

Instead of buying one with all your down payment money or one with just 20% down, buy as many as you can.  Not sure what the mortgage rates are in Canada but in the States they are still hovering near historic lows.  I'd take advantage of this low interest rate environment (and I have).  I'd also take advantage of the mentorship your wife's parents are proposing.  Renovation and Rentals they aren't that hard but its a lot easier when you know what you are doing.  If you have someone who's successful already and willing to help you out.  Take it. 

Also, if you want to go the route of putting all your money down, you need to hold some back in a reserve account.  The rule of thumb is 4% of the value of your portfolio, if you only have one investment property though i'd bump that number up just a bit like 10k at a minimum..   Because sh-- does happen.

[matchewed]

While srad is right about leverage being your friend and having cash on hand being important for renting there are so few details in your post that no one can tell you what decision to make. You haven't said anything.

"You have $150k and make $50k a year, should you buy a rental property?" That is in essence your post. If you look into being a landlord and RE investment you'll find that isn't enough information to make any decision.

I'd recommend looking at the case study sticky and providing as much detail as you can. :)

[rachael talcott]

I'll second what matchewed said.  If I were going to buy a $150K house, I'd want to get $15,000 profit out of it, after vacancy, taxes, insurance, and repairs/deferred maintenance.  Otherwise you might as well just put it in the stock market long term. You can look up taxes, and call an insurance company for insurance (rental insurance is more than your primary residence). For maintenance I assume I'll need to replace the roof and HVAC every 15 years, plus smaller miscellaneous stuff.  Most properties on the market do not get me that 10% ROI.  I usually spend months looking for the right deal.

I've never been able to make the math work for a mortgage on a rental, but YMMV depending on local conditions.

[West996]

Thanks, guys,

I do apologize if my posts don't contain all the info they should. I'm very new to this world.

So it seems like the option should either be, have a small of a mortgage as possible so that the property generates more actual profit. Or use my liquid cash to buy as many properties as possible.

My confusion came from people telling me there is no point to pay off all the mortgage because the tenants are paying that for you. That didn't really make sense to me. The simple math seems to me that if you can invest the rest of your cash into something that is going to return more than what your mortgage would cost to borrow from you should do that, but that is also more work for me to track the second investment.

I don't want 3 or 4 mortgages going with multiple units because if the mortgage rates do spike then I'm screwed.

So at this point, I'm leaning towards putting as much down towards the house as possible while still leaving enough liquid cash for emergencies.

[matchewed]

It's actually still more cost effective to put as little down as possible while still maintaining advantageous interest rates. It's called leverage. Obviously you don't want to over leverage yourself but putting down as much as possible into a less liquid asset while leaving a small cash buffer may make you miss out on alternative investments or inevitable larger expenses.

[srad]

I don't want 3 or 4 mortgages going with multiple units because if the mortgage rates do spike then I'm screwed.

You do want 3 or 4 mortgages, because if rates do spike you are fine.  Your's aren't going up.  They are fixed.