Author Topic: How to have rental properties in my portfolio?  (Read 2018 times)


  • 5 O'Clock Shadow
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How to have rental properties in my portfolio?
« on: August 22, 2015, 10:07:25 PM »
I'm new to MMM, but I'm very glad I found this website and blog. A few quick things about me - 25years old, about 20k in savings, no student loans, no debt, I'm an independent contractor that makes about 65k/year after expenses, single, no kids. (Please let me know if you need any other information)

I want to start investing for FI. My accountant told me to make a SEP IRA and he said don't put more than 10k in it for now. That's the easy part I also wanted to double check and make sure I can open a Roth IRA, the only reason I think a Roth would be best for me is because I plan on buying a large amount of real estate and might need to pull some out for opportunities before I'm 59.5. But as far as the stocks go from what I've read I think I'm just going to put all of my money into the vanguard VTSMX and forget about it.

 I have a uncle that is 77 and manages 20 of his own rental properties in another state, he is getting old and wants to sell them all.The average value is about 20k/property and range from SFH's to duplexes and triplexes. I'm hopping to buy them all from him in about 2 years, or buy about 2-3 properties/year. If things with my contract go bad I will move there and manage them myself otherwise I plan to have a property management company do everything and I will stop by a few times a year to check the properties.

I think I have always been a pretty frugal person I don't really spend a whole lot of money- id say on average about $1,400/month (which is currently going down). I don't have Cable anymore, I'm starting to cook and now I walk to work and only drive once per week. I know I can cut down on food expenses also, but the main thing I want to know is if I'm going about investing right.

1. All VTSMX in a SEP IRA and then maxing a Roth IRA($5,500) because I can't have a traditional IRA along with those right?

2. After I max out the IRA's where should I put the money I plan to use to buy the real estate in the next couple years with? Bettermint, or regular vanguard taxable account?

3. What do you think is my best strategy in buying the rentals from my uncle. Buy one by one cash, or buy 5 at a time with mortgages?( he says I can take over the mortgages and have them transferred into my name if I give him 5k as down payment on a 20k property- there's only about 10k left on the 15year mortgages(with 5years remaining); he's giving me a good deal on the property) these numbers are estimates

Or if buying these properties from him is a bad idea in the first place. I do want to have a large portion of my portfolio In real estate and I think this would be a great start.

I will really appreciate any advice. By the way I made this with my phone and I don't have the best writing skills so please let me know if you need anymore information or need me to be more specific with some of the numbers, Thanks in advance.


  • Handlebar Stache
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Re: How to have rental properties in my portfolio?
« Reply #1 on: August 23, 2015, 03:05:36 AM »
If you an independent contractor then I am assuming that you know something about housing and housing construction. Use it to your advantage. I thought your post was going to be about buying foreclosures and fixing them up. The uncle thing might work too. I'm not faimiliar with properties worth only 20K. Sounds like deal. I would take a trip to see these 20K properties or units before purchasing. If it looks good, pull the trigger.

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  • Walrus Stache
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Re: How to have rental properties in my portfolio?
« Reply #2 on: August 23, 2015, 05:38:20 AM »
The first question is whether your uncle is helping you get started or dumping these properties to get out of the business.  Have you seen these properties?  Do you know what the rents and expenses are?  $20k properties are likely in some pretty bad neighborhoods.  If they are, you will have high vacancy and collection losses and repair bills.  Does your uncle use property management or manage these properties himself?  It's tough to find decent property managers in bad neighborhoods.

You don't say what kind of work you do.  Could you get a job in your field near the properties?  Would you want to live in that area?  Do you see yourself managing the properties?

My guess is that the mortgages were seller financed.  The loans were small and most conventional lenders won't do those loans.  You can often take over mortgages with the seller/lender's approval.  In your shoes, I would get more information about the financing and whether the loans can be assumed.

This could be a great opportunity or a money pit.  Some research should tell you which it is.

Any money you intend to use in two years should be in cash.  Paper asset markets are too volatile to hold money you will need in that time frame. 

Real estate is a great way to build wealth, but it takes more knowledge and skill than investing in a total stock market fund.  Read some of the books on the list at the top of the category and study the post on evaluating rental property.  You will be better equipped to buy your first investment property.


  • Pencil Stache
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Re: How to have rental properties in my portfolio?
« Reply #3 on: August 23, 2015, 10:02:08 AM »
If you an independent contractor then I am assuming that you know something about housing and housing construction.

I think you're confusing independent contractor with general contractor.

'Independent contractor' essentially just means self-employed, filing form 1099 with the IRS.  You don't necessarily have to work in housing/construction... it could be any field.  For instance, many freelance bloggers work as 'independent contractors.'

A general contractor is the person who oversees/manages construction projects.

To be quite frank, the OP doesn't provide enough detail (or maybe he himself is confused on the difference).  In either case I think more clarification on the type of work you do would be helpful, OP :)


  • Stubble
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Re: How to have rental properties in my portfolio?
« Reply #4 on: August 24, 2015, 12:26:26 PM »
You have to run numbers and do proper due diligence on each property to determine if they are any good or not first.  You cant assume they are all winners just because they belong to your uncle.   How much are the houses worth?  How much do they rent for?  How many of them need rehabs?  Maintenance?  How many leases are coming due this year?  Those are all additional costs that you need to accommodate for.

Also, it is not possible to transfer a mortgage to someone else. It sounds like he will owner finance to you and do a wrap around mortgage which can be done but there are risks associated with that so you should ask him to clarify what he means by transferring the mortgage to you.  That is not the way it works for conventional lenders.