Author Topic: Looking to buy a home live in it then rent it out down the road.  (Read 3840 times)

UltraRunning

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Hey all. So, I am currently deployed and come back home in late october.  The wife and I were looking at purchasing a house  for 60k.  I am currently stationed in a lower income area of south carolina so it is a 3 bedroom 1 bath 1000 sqft house.  We know  we will be here at  the south Carolina station for 3 years.   I can get a backed v.a. loan through usaa for 3.5 percent on a 30 year mortgage. It is located 1.5 miles away from base so it would be quite easy to rent out and due to the proximity of the base and there would always be a demand.  We are both 22 so looking at this to be our first rental of many. 
  Current assest: 18k in vanguard (taxable accounts) between, reits,  us total stock market, total international market, and  us total bond market. TSP: 5k between large cap fund,small cap fund, bond fund.  I contribute 1k a month into  the vanguard funds and 400 a month into my tsp. Wife graduates college in december and will start working a social work job in January earning 30k before taxes. Currently I am an E-3 about to put on E-4 in the Air Force  if this helps any   I guess the question is go with the safer bet on  just renting or go with this house purchase and turn it into a rental whenever we move. 
Thanks for all the input and advice

UltraRunning

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #1 on: July 21, 2014, 04:19:15 AM »
also forgot to add that we have zero debt :)

UltraRunning

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #2 on: July 21, 2014, 04:28:06 AM »
Forgot some info, I take home 2,800 a month  after taxes including bah, food stipend etc, ( when im stateside). Bills: $30 phone bill thats it. I bike to and from work and I currently live in the dorms until my wife graduates college and moves to south carolina ( she currently resides in tennessee where she is finishing up her bachelors in spanish and social work ( Wife is on a full ride plus some so her  rent, college, food, cell phone bill,etc is paid for by her excess money in scholarships).   Of course bills will rise a bit when we move in including rent and such but just a litle more of a backstory for yall.

mcdougle

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #3 on: July 21, 2014, 09:42:42 AM »
Hey, Louie. I actually stumbled on your post and created an account just to answer your question, since I can relate to your problem! I'm actually living in a house right now specifically with the intention of renting it out when I move (hopefully at the end of this year).

The answer to your question is: it depends. Do you want to eventually get into real estate investing and owning rental properties, or is this just a "I might rent it out in the future if the stars align" sort of thing? Because if you're excited about real estate, what you're talking about sounds like a great way to get started. Otherwise, I'd say find a place to rent.

The main reason I wanted to answer your question, though, is in case you do plan to go this route. If you're looking for a home to rent out in the future, you will specifically want to buy a rental property and not a personal residence. What I mean by this, is rather than looking for the home that gives you the greatest emotional connection (it's pretty, the rooms and floorplan appeal to me, oh I can put my desk here and decorate it such and such a way) you want to find the property that makes the most sense financially. 3bd/1ba homes are typically hard to rent out unless the target demographic in the area is college students or young professionals (families are attracted to 3/2s, 4/2s, 4/3s). Also make sure you can make a profit on it -- the basic idea is that your mortgage (and any other associated costs like insurance) should be 50% or less of the market rental rate (so if your mortgage, taxes, insurance, etc. is $500/mo. you want to make sure you can successfully rent it at $1000 or more, which you can do by checking what other comparable properties in the area are renting for). A good rule of thumb is to try to buy a property such that the monthly rental rate is 1% or greater of the total purchase price (a $100,000 house should rent for $1,000 per month) although that doesn't necessarily make it a good deal (especially if you need to get PMI, which you probably would with 3.5% down).

If you're actually excited about real estate investing, I'd suggest doing a lot of research first. Biggerpockets.com is a fantastic resource, and it's where I've learned most of what I know (the podcasts are amazing). Ken McElroy's book (The ABCs of Real Estate Investing) is great too; he lays out step by step how to do the math to make sure a deal is a good one (and he's Robert Kiyosaki's main real estate investing partner, so he knows his stuff).

waltworks

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #4 on: July 21, 2014, 10:27:04 AM »
What could you rent the house for, and what would it cost you (PITI, maintenance, etc) to own it? Run the numbers, my friend, run the numbers!

-W

Mazzinator

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #5 on: July 21, 2014, 01:46:00 PM »
I agree with the other posts. Also note, that with a va loan you will have to pay a "va fee" last time i checked, it's:

0% dp = 2.15% fee
5%-10% dp = 1.5% fee
10% or more dp = 1.25% fee

va loans can be 0% dp and all costs can be rolled into the mortgage (up to something like 3% over) No PMI. With zero money due at closing. This is for your first purchase. After that the va fee goes up.

A $60k house with fees is about ~ $280/month plus taxes

So, to repeat...

What do these houses typically rent for?
Who/what rank typically rents these houses?
What is your target renters BAH?

Good luck, and i'm looking to do something similar...military, va loan, live in the house first, then rent it out, etc

escolegrove

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #6 on: July 21, 2014, 09:53:23 PM »
My husband is active duty military (NAVY) and has been in for 5 years. We are also young and have been building our baskets through both TSP (highly recommend) and buying a personal property at each duty location. We have bought 5 houses and started at 23 and 25.

We than rent it out when we leave. We put as little down in solid homes that attract the tenants that will be able to afford and take good care of the rental. We have split our va loan and bought two houses with nothing down and the third with 5% down. I self manage the house and keep the houses filled allowing us to operate on smaller margins.

We own 2 houses we bought in charleston as pure investments. My only concern is who will your 60k house appeal to and the monthly payment. If the number (as asked by the previous poster) than I am all for it as that is exactly what we are doing. We are hoping that our real estate cash flow and the pension (if still around) allows us to retire early. Good Luck! Feel free to pm if I can help.

UltraRunning

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Re: Looking to buy a home live in it then rent it out down the road.
« Reply #7 on: July 21, 2014, 10:31:12 PM »
Hey, Louie. I actually stumbled on your post and created an account just to answer your question, since I can relate to your problem! I'm actually living in a house right now specifically with the intention of renting it out when I move (hopefully at the end of this year).

The answer to your question is: it depends. Do you want to eventually get into real estate investing and owning rental properties, or is this just a "I might rent it out in the future if the stars align" sort of thing? Because if you're excited about real estate, what you're talking about sounds like a great way to get started. Otherwise, I'd say find a place to rent.

The main reason I wanted to answer your question, though, is in case you do plan to go this route. If you're looking for a home to rent out in the future, you will specifically want to buy a rental property and not a personal residence. What I mean by this, is rather than looking for the home that gives you the greatest emotional connection (it's pretty, the rooms and floorplan appeal to me, oh I can put my desk here and decorate it such and such a way) you want to find the property that makes the most sense financially. 3bd/1ba homes are typically hard to rent out unless the target demographic in the area is college students or young professionals (families are attracted to 3/2s, 4/2s, 4/3s). Also make sure you can make a profit on it -- the basic idea is that your mortgage (and any other associated costs like insurance) should be 50% or less of the market rental rate (so if your mortgage, taxes, insurance, etc. is $500/mo. you want to make sure you can successfully rent it at $1000 or more, which you can do by checking what other comparable properties in the area are renting for). A good rule of thumb is to try to buy a property such that the monthly rental rate is 1% or greater of the total purchase price (a $100,000 house should rent for $1,000 per month) although that doesn't necessarily make it a good deal (especially if you need to get PMI, which you probably would with 3.5% down).

If you're actually excited about real estate investing, I'd suggest doing a lot of research first. Biggerpockets.com is a fantastic resource, and it's where I've learned most of what I know (the podcasts are amazing). Ken McElroy's book (The ABCs of Real Estate Investing) is great too; he lays out step by step how to do the math to make sure a deal is a good one (and he's Robert Kiyosaki's main real estate investing partner, so he knows his stuff).

Appreciate the information on the 3b/1b being a tough sale ill definitely stay away from that style of house. I appreciate the books as well and read as much as possible in these next three  months before heading back state side.