Author Topic: jumping into rentals  (Read 1643 times)

moneysaver

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jumping into rentals
« on: June 05, 2016, 02:31:53 PM »
I am currently working with a realtor to purchase a 3 bedroom/ 2 bathroom house in a college town about three hours from where I live.  My goal is to be able to purchase a new property every year or two.  With that in mind would it make sense to get a HELOC for the down payment for the first one? Would it prohibit me from purchasing others in the future?  I will be using a PM company as I will not be in the same town and have been researching them to make sure I am going with a reputable company. How much money should I be putting into an account so I am prepared for upgrades to the property?  Is there anything I am missing or should also be considering? Thanks in advance for your suggestions and advice.

iamlindoro

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Re: jumping into rentals
« Reply #1 on: June 05, 2016, 05:03:26 PM »
If you need to borrow (get a HELOC) to make the down payment on your first property, it's likely that you are undercapitalized.  I'm firmly in the camp that believes you should be able to manage the down payment and initial repairs (plus an ample margin) in cash.  Better to save longer than to get yourself overleveraged and unable to properly manage the property.

As to how much you should be saving for upgrades to the property, that's hugely dependent on the kinds of property you'll be purchasing, and on the individual properties themselves.  If you're purchasing brand new properties, your upgrade budget might be near-zero. If you're buying hundred-year-old buildings, it might be significant.  Or you might be buying a hundred-year-old property that has been recently upgraded. Or you might be buying a hundred-year-old property that doesn't merit being upgraded.  There's just no way for us to say.

Common sense

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Re: jumping into rentals
« Reply #2 on: June 05, 2016, 08:38:48 PM »
If you need to borrow (get a HELOC) to make the down payment on your first property, it's likely that you are undercapitalized.  I'm firmly in the camp that believes you should be able to manage the down payment and initial repairs (plus an ample margin) in cash.  Better to save longer than to get yourself overleveraged and unable to properly manage the property.

As to how much you should be saving for upgrades to the property, that's hugely dependent on the kinds of property you'll be purchasing, and on the individual properties themselves.  If you're purchasing brand new properties, your upgrade budget might be near-zero. If you're buying hundred-year-old buildings, it might be significant.  Or you might be buying a hundred-year-old property that has been recently upgraded. Or you might be buying a hundred-year-old property that doesn't merit being upgraded.  There's just no way for us to say.

I'm with Robert on this one.  He's a smart guy. 

K-ice

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Re: jumping into rentals
« Reply #3 on: June 07, 2016, 01:27:50 AM »
With that in mind would it make sense to get a HELOC for the down payment for the first one? Would it prohibit me from purchasing others in the future? How much money should I be putting into an account so I am prepared for upgrades to the property?  Is there anything I am missing or should also be considering?

I agree if you NEED to borrow don't. If you choose to borrow maybe.

If you have 20% of your down pmt in cash or invested I think it is OK to get a HELOC and still keep your cash working for you. Yes this will affect your future borrowing power. Will it prohibit you from buying a second rental? Depends on the numbers.

Emergency fund of course depends on the current state of the house. If it is currently rented & in perfect shape keep 3 months. Otherwise keep even more.

Even with a good PM are you prepared to go on weekends? I think you need to put some sweat equity into the place to make it viable.