Author Topic: Getting started with rental property  (Read 4078 times)

uppy

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Getting started with rental property
« on: September 29, 2016, 04:18:05 PM »
I'm asking for future reference -- I don't have near enough cash to buy a house for myself much less a rental property. But I have seen people on MMM saying "Don't buy a house until you are $100K net worth." Currently I am worth...ahem...$4K as I pay off college loans with about 50% of my income each month.

All things being equal, at what point is it financially advantageous to mortgage a rental property? Never? Or does it still make sense as long as you can get in rental income each month more than the monthly payment with interest? ...and is it Mustachian to do so or just shoveling things around?

Pardon my noob-ness on this. Really I am just looking at my (relatively low) income and how long it will take to get to FI. Even at saving 50% of my income, all the calculators say I will be 50+ by the time I reach FI. I would love to speed this up a bit and I think having a rental property might be an investment up my alley.

I will of course be throwing money at my 403b and index funds as well...but gosh, at 32, 50 is a long ways off.

matchewed

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Re: Getting started with rental property
« Reply #1 on: September 30, 2016, 05:15:43 AM »
It makes sense when the numbers make sense. Take a trip to the real estate section of the forums and try to grok some of that luscious info.

sunshine

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Re: Getting started with rental property
« Reply #2 on: September 30, 2016, 05:36:49 AM »
First I'll say I am very conservative . However we do have 3 paid for properties.  Questions to ask yourself. Do you have enough funds to pay your expenses and a rentals if you lose your job and the rental is empty? Any rental needs enough leeway in the numbers  so you can weather a storm. Maybe a great first property would be a multi family so you could let tenants help pay for your home. Bigger Pockets is a fantastic place to learn about rentals.

Drifterrider

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Re: Getting started with rental property
« Reply #3 on: September 30, 2016, 06:59:50 AM »
A lot of people become landlords when they move from their first house to their second, and rent their first.

What is your housing situation now?

uppy

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Re: Getting started with rental property
« Reply #4 on: September 30, 2016, 08:30:07 AM »
A lot of people become landlords when they move from their first house to their second, and rent their first.

What is your housing situation now?

Renting, with my partner, a 2bdrm nice place for $850/month. A roommate pays $450/month all included. Which is a great deal (the thought is my partner and I share everything and are never home, so roommate has run of the house most of the time and has no liability), however we don't particularly like having a roommate (another perk for her is she never cleans) so we will probably ask her to move out in a few months, once SL is paid off.

But like I said I don't have the cash to do rental property right now, just thinking for the future and wondering whether it ever makes sense to mortgage a rental property *while* renting.

matchewed

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Re: Getting started with rental property
« Reply #5 on: September 30, 2016, 11:45:39 AM »
A lot of people become landlords when they move from their first house to their second, and rent their first.

What is your housing situation now?

Renting, with my partner, a 2bdrm nice place for $850/month. A roommate pays $450/month all included. Which is a great deal (the thought is my partner and I share everything and are never home, so roommate has run of the house most of the time and has no liability), however we don't particularly like having a roommate (another perk for her is she never cleans) so we will probably ask her to move out in a few months, once SL is paid off.

But like I said I don't have the cash to do rental property right now, just thinking for the future and wondering whether it ever makes sense to mortgage a rental property *while* renting.

Yes it is possible for that to make sense. Those two things just might not necessarily be in the same real estate market.

arebelspy

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Re: Getting started with rental property
« Reply #6 on: October 01, 2016, 03:23:20 AM »
It makes sense when the numbers make sense.

Beautifully put.

Your net worth is much less important than the deal.. though healthy cash reserves are important when owning a rental, so if you do go into rental properties, I'd suggest focusing your portfolio on rentals, and cash (and get equities later).  This is what we did.

Quote
Take a trip to the real estate section of the forums and try to grok some of that luscious info.

Definitely.  Check out, specifically, the sticky post with real estate books to read.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Enigma

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Re: Getting started with rental property
« Reply #7 on: October 04, 2016, 06:16:58 AM »
I am currently renting while having rental property.  But in your situation I would be inclined to look for a duplex or a house that I rented one of the bedrooms out.  It sounds like you already can find renters (friend, significant other, and yourself).  Extra money (if there is any), I would throw at the highest interest rate (student loans or house).

Good luck!  We all start somewhere.

clarkfan1979

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Re: Getting started with rental property
« Reply #8 on: October 14, 2016, 01:37:16 AM »
I was about age 22 when I first got interested in real estate. I read "Rich Dad, Poor Dad" and my current landlord at the time was nice enough to share some if his stories with me about his business. He bought a lot of real estate in San Diego in the last 1980's before it was expensive.

I spent the next 5 years reading real estate books and saving my money. I bought my first rental at age 27, my second at age 32 and hopefully my 3rd at age 38. I seem to be on some sort of a 5 year schedule.

fsohn

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Re: Getting started with rental property
« Reply #9 on: October 16, 2016, 02:56:05 PM »
I'm going to slightly hijack this post with a question of my own.

I'm currently sitting at a net worth of around -$9,000.  For that, I blame years of non-Mustachian living, and facepunch-worthy decisions.  But I'm making excellent progress.  This year alone, I've increased my net worth by almost $100,000 by paying down debt and increasing tax-advantaged savings.  All told, I have about $63,000 in student debt left to pay off (refinanced with SoFi with a rate of 2.23 percent and a monthly payment of about $1,200).  Due to a high income job -- which I don't exactly loath, but cannot see myself doing for more than 18 to 24 months more -- I am able to pay about $10,500 a month on that student loan, without really impacting my quality of living at all.

My question is this:  there are three-unit buildings on the market in my area (Chicago) that go for about $500,000-$525,000 range.  Using very conservative estimates for things like rental increases, maintenance/insurance/taxes, occupancy rates, property appreciation, and such, the "nicer" of the three-unit places would actually take less out of my pocket each month than I am currently paying in rent -- somewhere between $50 and $100 less a month, depending on utilities, etc.

Now, I don't really have money available for a down payment.  There is roughly one year's worth of expenses (about $24,000) in very safe investments, but if I started paying the minimum amount on my student loans, I could have enough cash to close at a ten percent down payment level (plus closing costs) together in less than six months.  Or I could wait longer, and save up twenty percent -- the numbers work either way, even with the higher interest rate that comes with the smaller down payment.

So, assuming the numbers make sense (and I've been running them for weeks, looking for errors, and they really seem like the make sense even in the most conservative case) would you guys do it?  By "it" I mean start putting the extra $$$ that are currently going into student loan payments into a savings account.  I'm of course leaving some money on the table (essentially the difference between the interest rate on the loan versus the interest rate on the savings account), but if I decide that I just really hate my student loans that much once the minimum down payment is saved up, I can reverse course and end up "losing" less than a thousand bucks.

Am I crazy here?  Is this blatantly un-Mustachian?  Thoughts?

Enigma

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Re: Getting started with rental property
« Reply #10 on: October 17, 2016, 07:32:52 AM »
So, assuming the numbers make sense (and I've been running them for weeks, looking for errors, and they really seem like the make sense even in the most conservative case) would you guys do it?  By "it" I mean start putting the extra $$$ that are currently going into student loan payments into a savings account.Am I crazy here?  Is this blatantly un-Mustachian?  Thoughts?

I take chances...  If everything works out well on paper using the most conservative cases then I would probably proceed myself.  I would cut back on my student loan payoff (I have done this a couple of times) while increasing my down payment.  Buying property varies widely between location, costs, and mortgage requirements.  I wish you the best of luck!