Author Topic: Invest in rental property while still renting?  (Read 566 times)

tacomike

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Invest in rental property while still renting?
« on: July 08, 2019, 01:28:38 PM »
I'd like to open a discussion regarding a rental properties in general, and in specific, a rental property my wife and I are looking to invest in.

A little bit about ourselves:
- We are a married couple and are both 24 years old
- Currently renting and do not own any real estate
- Both employed and happy with our area and careers
- Monthly take home pay is $5,200 guaranteed... I could make more on commissions but we dont count that into our budget
- I can receive a 10%-20% bonus at year's end if I meet sales goals. We don't count this into our budget.

Assets:
- Investments (401k's, Roth IRA, HSA): ~$25,000
- Emergency Savings (normal savings account): $10,000
- Future home down payment savings (high yield savings account): ~$20,000
- Checking: This fluctuates between $1,000 and $2,500 but is never below $500.

Debts:
- $11,000 car loan (receive $500 expense per month for this car from company)
- $3,000 student debt

Net Worth: ~$40,000

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We currently rent in a moderate cost of living area for $1,200/month. We've always wanted to own a rental property in the future to provide passive income, and a good deal on a house has come up. It is a 3br/2bath house 2 miles away from where we currently live. The asking price is $200,000. I would obviously have an inspection before purchase, but there doesn't seem to be any glaring problems with the house. My question here is should we look into this house to turn into a rental property? Or is this foolish in our current situation to become landlords while still renting?

We are decently conservative with our finances, and put an emphasis on saving. Our goal before this rental idea came up was to buy a house in our area in the next 2 years for ourselves to live in, which would cost around $290,000-$320,000. Having a rental property would possibly put this on hold for a year or so but it sounds like something we would both enjoy as my work from home job is flexible and I could do the yard-work and some of the house repairs. We live in a desirable part of a growing city, and don't think it would be much of a hassle to find renters for this property.

Please let me know what you all think! Thanks

Jon Bon

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Re: Invest in rental property while still renting?
« Reply #1 on: July 08, 2019, 02:56:31 PM »
Mike,

Welcome, looks like you are just starting out which is great! If you are serious about RE,  you have lots of reading to do!

So honestly nothing in your entire intro even maters. Your finances are probably fine, you are young, that's fine too. You have some debt, fine......I dont care about any of that. How much does that rental go for? Does it get $1500 a month? or does it get $3,000?

Look up the 1% rule, may be less true now then it used to be. But it is still a really good place to start when you are valuing properties especially if you are just starting out. I usually dont like single families as rentals but your area might be different.


tacomike

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Re: Invest in rental property while still renting?
« Reply #2 on: July 08, 2019, 03:09:58 PM »
Thank you for the reply. I have really enjoyed doing all of the reading on here.

I should have stated that this property brings in $1,600/month. I will check out the 1% rule. Thanks for the info!

Papa bear

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Re: Invest in rental property while still renting?
« Reply #3 on: July 08, 2019, 03:18:16 PM »
In your shoes, I would be looking for a 2 unit.  If you buy a rental, you will not have the best rates for property.  If you buy a 2 unit, you can get it as a primary residence and save about 1% on a mortgage.

And as was said before, what is the market rent of the place?  That is more important than anything else here.


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ketchup

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Re: Invest in rental property while still renting?
« Reply #4 on: July 08, 2019, 03:28:33 PM »
$1600/mo from a $200,000 property seems like a pretty thin profit margin.

That said, it's very doable to be an investor while renting.  I have a rental property and a second that I sold on payments (still collecting) and have both rented and owner-occupied houses before.  Whether to invest in real estate or not is a decision independent of whether you should rent or buy your primary residence.

SeattleCPA

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Re: Invest in rental property while still renting?
« Reply #5 on: July 09, 2019, 06:23:19 AM »
Whether to invest in real estate or not is a decision independent of whether you should rent or buy your primary residence.

@tacomike , I hear lots of wisdom in Ketchup's comment and especially the sentence I highlighted about.

I also think you got good advice over at Bogleheads from Sandtrap... but awkwardly that online community is often so dogmatic in its investing philosophy that IMHO you get discouraged from anything that doesn't look like their three fund portfolio.

You might be interested in the blog post I did yesterday basically in response not to your query at Bogleheads but similar queries: A Dozen Reasons for Direct Real Estate Investment

To sum up that post, tons of tax reasons give a leg up to real estate investors... further, real estate probably does good things to your investment portfolio's returns and risks.

P.S. Because I try to think about investing in terms of someone's overall portfolio and not in terms of individual investments that make up the portfolio, it also seems relevant to think about your other, non-real-estate investment choices... and I think one would typically optimize by taking any employer match money available in something like a 401(k) or Simple-IRA.