First rental

[PAstash]

Here is the lowdown.
zero debt.
23k in savings
10k is in index funds and bond funds
13k is in a money market fund just for safe keeping as a down payment on a house.
i made about 50k last year with a little bit of over time.
i am currently saving 2k a month. living in a cheap rental working for my land lord part time on top of my 9-5 job

i came across a duplex they are asking 120k i am not sure if i could negotiate them down much further as it only sold 4 years ago for 114k it is in a great neighborhood with a great school district for my area. I'd like to purchase this and live in a environment that would make me a lot happier (with my girlfriend and my dog who i am currently living separate from)

My girlfriend is just beginning the path to FI lucky she is a lot younger so we are still getting debt eliminated but we are making strides.
so i am not including her income other then to say she pays her share of food and utilities.

so the obvious question is do i take my savings put it as a down payment on this place an start land lording with a nicer place to live. i have done a lot of research about the laws and what's necessary for me to do on my part and i'd like to give it a shot i guess i just wanted a second opinion. the long term idea would be to move to a home just for my family after this i would just like to get one rental property as a portion of my retirement plans. i have a 457 plan which i contribute to though work also a pension and still another 20 years before i could collect it. depending on how close i can get to FIRE before that i may take a hit on it to retire earlier.

any opinions would be appreciated if you need more info to form one just let me know

[Overseas Stache]

You will want to run the numbers and see if it is a good deal first.
Mortgage amount?
Taxes and Insurance?
Repairs needed?
How much does it rent for?
Does it meet the 1% rule if both sides are rented out?

After you answer those questions it will be easier to see if it is something you should do. I do think that buying a duplex and renting the other side is a good way to buy your first home if the numbers are good.

[PAstash]

They are asking 120k I may be able to get it for less but not much
Taxes are 1300$
Insurance is unknown however I have never had a major insurance problem car house or other wise also currently at 30 years old(don't know if that matters)
0$ repairs needed
1400 if both sides are rented
It does meet the 1% rule. Guess I am more or less just looking for a nudge. This will be my first attempt to start some passive income that is not stock related.

[Seeking the Brass Ring]

The biggest factor for you is probably going to be the loan terms and total costs.  Since you will be living in one side of the place, it might not cash flow as well as if both sides are rented, but you will be saving on your own housing costs.  You need to break down the numbers as far as what the cost per month is (taxes, insurance, mortgage, utilities, trash pickup etc.)  Ideally the rent from your tenant would cover all of these expenses and then some.  You will need to have a chunk of cash available for major repairs (roof, furnace, siding etc) because those things will fail at some point.

An example:

Mortgage (30 year fixed at 5% with 20% down) = $515
Taxes = 108
insurance = 100
misc = 100

Tot= $803

Rent = $700

Net $-103


This might look bad but if you consider the $103 to be your own rent then it starts to look pretty good.  These are ballpark numbers and you'd have to have better estimates before making a decision.  There are also lots of advantages to being owner occupied in terms of interest rates and tax savings. 

All in all it's probably not a bad deal, just do your due diligence before signing anything.

[Overseas Stache]

Ok let me try and give you a little push. Now remember you need to look up all your numbers to make sure they are right, Get an insurance quote before you buy. Make sure the taxes are correct DO NOT trust Zillow, look it up on your county's assessor of property website and your city website. It is important to check both and add them both together. Once the house is under contract you will want to do home inspection as well.
With all that being said let me run the numbers based on the estimates you gave me.

Down payment 20% 24K
Closing costs              3K

Mortgage estimate 4.5%    - 5844
Maintenance 10% of rent   - 1680
Insurance                           - 1000
Taxes                                 - 1300
Vacancy 5% of rented side - 420

Rental income                    - 8400
Net income                       - (1844)

So based on these numbers if you invested 27K your monthly housing expenses would be $154 / month. And when you move out you would have a unit that cash flows around $500 / month. 
 

[PAstash]

Thanks for your response.

So in your experience. Would you say this is a good move? I never did the landlording bit before so I don't know if this is a good payout for the amount of work that will need to be done.

[Overseas Stache]

Thanks for your response.

So in your experience. Would you say this is a good move? I never did the landlording bit before so I don't know if this is a good payout for the amount of work that will need to be done.

If you get a good tenant and you live next door there shouldn't be much extra work for you to do. Whether it is worth it is really for you to decide.

[PAstash]

Thanks for your advice. We are going for it. Your estimates were on point. You were about 58$ dollars off. Thanks again for your help and wish me luck. We are both a little scared but we sat down and decided to give it a shot. Either way I got a good deal on the place so if I hate it resell should be fairly easy.

[arebelspy]

Good luck!  :)