Question - am I really ready to invest in a rental property?
I have been working and saving and being as mustacian as I can muster for about 7 years now. Between the retirement funds I have invested and the emergency fund I have now, I am feeling pretty comfortable. I don't have a very high income (around 60k, as a single parent with three kids, it has to stretch a lot at times), but it is steady and I find it is definitely enough to get me working on the right path. Finishing up my bachelor's degree now, so hopefully the income will only go up. I'm 37 now, and one of my goals is to have one or two rental properties before I turn 40 so that I start a passive income stream. We live in a decent area in a small ranch house (about 1200 square feet) that I hope to rent out some day once the kids leave the nest. I checked with the bank and they will give me about $140,000 on a HELOC for my house. It's worth about $220,000 and I owe about $45,000 on the mortgage.
I have been looking at the local market and talking to other rental property owners I know, trying to get my finger on the pulse. I can do most basic repairs myself, but am not capable of a complete gut of a house, so it would have to be in relatively decent shape. Since I'm only looking a cheap places, I know I will be putting in some repair hours. The thing is, I'm really nervous that I will unknowingly pick the worst property imaginable and be stuck with the fallout.
I don't want to use too much of my equity for one rental....
Did any of you start by using you primary home equity, or should I be waiting to build a separate cash fund to finance this type of thing? I applied for the HELOC so that if I find something I think is the right property, and all the math works in my ROI calculations, I would be ready to pull the trigger. How did you start? How much equity did you use? What checks and balances did you hold yourself too so that you didn't get caught in a bad spot? All feedback is greatly appreciated!