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Regular Contributor
SantaMar
Posts: 117
Registered: ‎03-04-2012

purchasing a rental property

i closed on a property two months ago and it feels great!  thanks myfico....couldnt of done it without you...

 

im considering getting a rental property just to create some passive income on the side.  believe it or not there are 62 properties in the my city that are between 10k and 20k.  the rent in these neighborhoods are roughly 700 - 800 for the house.  we are talking 3 bedroom row homes in the inner city.  low income area.  however there is an over abundance of people.  section 8 maybe?  i can almost gaurentee to have the place rented.  im thinking simply in terms of numbers...puchase for 15k, invest 10k to gain occupancy.  total investment of 25k.  at 800 a month i will get my return in a little over 30 months?! then collect rental income for the remainder of my days while the property gains in value (hopefully)....then just move on down the line to maybe a second or third?! 

 

i have the liquid money.  my fiance has the liquid money.   after we closed on our house and rehabbed the house we are sitting on close to 75k between us.  i have my own business and she is in the corp world...both of us are starting out but the idea of retirement seems to be in the discussion....i dont have an IRA, 401k, portfolio or any sort of retirement....im 30 years old.  the idea of snatching a couple cheap cheap properties might seem like a wise move?! 

 

thoughts?!

New Member
Katherine1
Posts: 5
Registered: ‎10-16-2012

Re: purchasing a rental property

[ Edited ]

Hi,

Your planning sounds very effective but you have to consider some points before the move. This strategy includes, income from the rental property (rent=800) from the very first month, but the real scenario is, there is no guarantee that you will get a tenant on time which pays all the bills on time. Considering the points, are you ready to bear the risk of paying the mortgage or bills from your core income. Think about it!

 

Feeling good to be here!
Frequent Contributor
germaine47
Posts: 305
Registered: ‎07-05-2011

Re: purchasing a rental property

Keep us posted on how you make it work.  It will be a great educational journey.

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Fako October 2012: TU 706, EX 641,
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Senior Contributor
StartingOver10
Posts: 3,011
Registered: ‎03-06-2010

Re: purchasing a rental property

[ Edited ]

IMO it sounds like you are ready to buy rental property. Your financials are good and you have the basis of an excellent plan.

 

One of the things that people forget is to first figure out who you want to rent to (target your market). For example, are you looking to rent to college-age students attending a nearby university or families with children or people entering retirement?  Each of those rental markets is a different kind of market. By different kind, I mean you will literally be looking for differently types of properties for each type of tenant. A good example is you might want one story villas for the newly retired or two story SFR's for young families. That is just one criteria. There are a whole set of criteria that you would detail prior to your even looking for the physical property.

 

Get your team together:  Realtor, Attorney (for leases and evictions if necessary), CPA/financial professional, handyman or contractor. Join an investment club that specializes in rentals so you can get the real deal for your city/town/state.

 

Personally, I think rentals are a fantastic way to grow your wealth and its not because I'm a Realtor. Just be careful and don't use your rental like an ATM - but it doesn't sound like you would do that anyway.

 

Good luck and have fun planning your future!

Moderator
webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: purchasing a rental property


StartingOver10 wrote:

IMO it sounds like you are ready to buy rental property. Your financials are good and you have the basis of an excellent plan.

 

One of the things that people forget is to first figure out who you want to rent to (target your market). For example, are you looking to rent to college-age students attending a nearby university or families with children or people entering retirement?  Each of those rental markets is a different kind of market. By different kind, I mean you will literally be looking for differently types of properties for each type of tenant. A good example is you might want one story villas for the newly retired or two story SFR's for young families. That is just one criteria. There are a whole set of criteria that you would detail prior to your even looking for the physical property.

 

Get your team together:  Realtor, Attorney (for leases and evictions if necessary), CPA/financial professional, handyman or contractor. Join an investment club that specializes in rentals so you can get the real deal for your city/town/state.

 

Personally, I think rentals are a fantastic way to grow your wealth and its not because I'm a Realtor. Just be careful and don't use your rental like an ATM - but it doesn't sound like you would do that anyway.

 

Good luck and have fun planning your future!


One advice...  don't skimp on inspections....  Make sure the house is structurally sound and that the wiring/plumbing is appropriate... 

 

DIY network shows the horror of bad remodels where a contractor cut into floor joists to plumb bathrooms and do electrical upgrades.  Also, problems with shoddy work in upstairs bathrooms can lead to water damage throughout the home.  

 

Due dilligence isn't the place to save $$


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Moderator
webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: purchasing a rental property


Katherine1 wrote:

Hi,

Your planning sounds very effective but you have to consider some points before the move. This strategy includes, income from the rental property (rent=800) from the very first month, but the real scenario is, there is no guarantee that you will get a tenant on time which pays all the bills on time. Considering the points, are you ready to bear the risk of paying the mortgage or bills from your core income. Think about it!

 


Agree that the OP needs to consider payment of the mortgage, (if there is one) with funds from regular payroll income.  As a property manager and owner of two rental units, I know first hand that It does happen.   In one case I held the propery vacant for 15 days (with a sizeable holding deposit and signed holding deposit agreement)
to accomodate the needs of the prospective tenants.


Starting Score: 08/29/2011 TU 671 EQ 674
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Frequent Contributor
TheConductor
Posts: 421
Registered: ‎07-24-2012

Re: purchasing a rental property

In addition to the cost of sustaining the mortgage during times when the property is vacant, you also need to consider the costs of maintenance and upkeep.

 

In addition, if you're renting in a low income area you're going to have to be prepared for tenants who skip out unexpectedly or cause egregious damage well in excess of the security deposit you received.

 

You may also get the occasional idiot who decides to start his marijuana growing operation in your property, and all the complications that come from that.

 

And you have to bear in mind that as the property gains value your property taxes will go up, but the tenants in a low-income neighborhood will resist even the slightest rent increases.

 

All that said, I agree with previous posters that you are well-positioned to take this step and do it right. Just do so with open eyes and be aware that cheap properties are often cheap for a reason and when a neighborhood is described as "low income" that can often describe not only the tenants but how well the landlords are doing on those properties.  :smileyhappy:

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