And if so, how much would you be willing to sacrifice?
To summarize some assumptions below: I think I'm looking at spending 20% of my current portfolio (and I'm FIRE).
It's a question I'm seriously considering as the house immediately next to mine has come up for sale. To fully understand why this could be very worthwhile for my situation, here's some context:
The neighboring house faces 90 degrees in the other direction, with it's backyard backing up to the side of my house. I only have about a 3' buffer of land before the property line, separated by a chain link fence at the moment. So if the new owner puts a pack of barking dogs (or barking kids) in the backyard, quality of life could go seriously downhill. Another consideration: these are very old houses in New Orleans, no insulation in the walls, raised house with no subflooring. So any significant change in noise pollution will be directly felt. Airbnb has unfortunately ravaged this town and the neighboring house could easily be renovated into a party pad where I'm enduring bachelor parties every odd weekend in the backyard.
But I also don't want to buy just to avoid the potential negatives. There's a chance we get a good neighbor out of the deal (I'm pessimistic based on the more affluent and more entitled trend of people who have been buying here lately though). I already have two rental properties nearby so I have some experience with renovation/upkeep/landlording. Positives for buying would include possibly splitting the neighboring backyard up so that I have some sideyard for my child to play in (I don't have a yard currently, it's a tight neighborhood). I could also potentially build a small shed/workshop for tool storage and project workspace in the backyard, which would be a huge plus for me. I could possibly sell one or both of my other rentals and just have my investment property right next door instead of a few blocks away - although the time and energy I've invested getting the other properties up to date combined with the relatively low amount of equity I have in them makes me want to just add to the portfolio instead of swap (not to mention difficulty getting financing these days as a "retiree").
Currently SO and I have about $400k in tax-advantaged accounts, $120k in brokerage, and $80k in cash. I'm FIRE, wife is part-time with a labor of love. Plan has been to live off the rental income between the 3 properties I currently have and let the investments grow for at least a decade or two. I'm waiting to hear back from a loan officer about what they'll do for me, as my tax returns show a very low income (deliberately). I got approval for financing last year for a similar situation (another neighboring house that I didn't purchase); was told I could get a commercial loan, 3 year fixed rates, 20 year amortization, 30% down. If it's similar financing this time, I just about have the 30% down in hand (then sell some securities to meet all closing costs). I expect the house to sell in the $300k neighborhood, although I'd guess $25k needs to be spent relatively soon in order to get dwelling insurance as well as reasonably good tenants. So back of the envelope, I'd need to sell around $30k of stocks to get me to the closing table with the other cash on hand. Plus whatever I need for fixing up the property although I could wait til 2018 for tax purposes and do that gradually as needed while working through the punchlist. I expect rent to be a minimum of $1000 for each side of the duplex in its current condition; $1250 or higher is common in this neighborhood for the size of apartments here and the location. Insurance should run around $3600/yr (dwelling & flood), taxes should run around $4200/yr. I have no experience with commercial loans, but if I assume a 6.5% interest rate on a 20yr loan, I'm looking at a slightly positive cashflow if I rent at $1200 on each side, not taking into account renovations.
Some additional concerns: I've got 3 mortgages currently, so I'm already heavily weighted in real estate (although I have very good cashflow on both my multiplex primary and one of the rentals, the third is getting a makeover this fall and getting higher paying tenants). Flood and hurricane potential is a constant (and worsening) threat, and while this prospective property is some of the highest ground in the city, the National Flood Insurance Program could at any point throw a curve.
My gut tells me this is could potentially be too big of a financial impact and additional headache but the fear of the unknown is really driving me right now. I haven't gotten methodical with setting the ceiling for a purchase price and I was curious if any early retirees on limited income had done evaluations for picking up unplanned-for investment property. With the loose assumptions here, would *you* do it?