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  1. #1
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    Buying Rental Investment Property

    So, we are first timers at this, but are thinking of getting property now as it seems to be bottoming out in our area with the interest rates low. Rather have my money in property than no interest CDs. We also have close friends that have built a fortune up over the last 10 20 years doing this. The real estate agent in area suggested we go with a single family, 3 bed, 2 bath, 2 car, or a 3 bed/2bath 1 or 2 car garage duplex first time out the gate.

    Nice duplexes are renting around $900-1200, at around $225-275K purchase(no updates/remodeling needed), around $200K needing work i.e. kitchen, HVAC, roof, floors type of thing).

    Nice single families, 3/2/2 are going as low as $160K and are renting for around $1200 up. Realtor(she has been in area for 20 years and is one of the biggest agents in area) told me our area has high demand for single family rentals right now, and are attracting a higher level client.

    Any thoughts from experienced rental owners? Most likely, we will be using a property management company for advertising, reviewing rentals, contract, maintenance, etc.

    Also, how close to your own home would you be willing to have rental property?

    Having shopped loans around except at two banks we use, even with tier one+ credit, they said 20% down, which I think is a little steep. Was hoping to be more in the 10% down range.

    Thanks, TRB



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    Re: Buying Rental Investment Property

    The key to owning rentals is to get your hands dirty and learning how to up keep your own properties. The less you spend on outside contract work, the better. Duplex properties are usually a safe bet. make sure you have a good lawyer, tax accountant and financial advisor to help plan your small business.



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    Re: Buying Rental Investment Property

    Always expect 20% down unless you are willing to take points. Down payments can be negotiable tho.



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    Re: Buying Rental Investment Property

    I am not a landlord nor have I ever been. I do plan on buying rental property at some point and I have read a fair amount about.

    In my opinion those ratios sound horrible. I wouldn't buy anything with at least a 1% ratio. I have seen people that want at least 1.5-2%. This blog has a really interesting discussion

    Let’s Buy A Foreclosure Episode 2 – What is the 50% 2% Rule? | Mr. Money Mustache

    Its also has a link to some additional discussion.



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    Re: Buying Rental Investment Property

    Buy the property on contract

    Down payments are much different with the contract otherwise 20% is the minimum you should expect.

    Multi family homes such as a duplex give you some flexibility in that hopefully at least one side is always rented out so there is cash flow. A single family home sitting empty for 3-4 months is not good.



  6. #6
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    Re: Buying Rental Investment Property

    Quote Originally Posted by CySmitty View Post
    I am not a landlord nor have I ever been. I do plan on buying rental property at some point and I have read a fair amount about.

    In my opinion those ratios sound horrible. I wouldn't buy anything with at least a 1% ratio. I have seen people that want at least 1.5-2%. This blog has a really interesting discussion

    Letís Buy A Foreclosure Episode 2 Ė What is the 50% 2% Rule? | Mr. Money Mustache

    Its also has a link to some additional discussion.
    the duplex example he gave was around 1% (assuming the rent was per apartment)



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    Re: Buying Rental Investment Property

    As a landlord and part time real estate investor, CySmitty's post is the basic groundrules for analyzing a rental property. As a general rule of thumb, follow the 50% Rule which basically says 50% of your rental income will go towards maintenance, deferred major expenses, vacancy, taxes, insurance and property management (if you do the management yourself, you can typically save 10% and use 40% instead of 50%). Then subtract your P&I payment for your loanremaining 50% from and that's what your expected cashflow will be.

    In your example:

    Property - $160k ($32k down, 128k loan = P&I payments of $730 per month, 30 yr fixed @ 5.5%)
    Rent - $1200/mo.

    50% Rule:

    $1200/mo rent - $600 for Expenses (50% of gross rents) - $730/mo P&I = -$130 monthly cash flow. This example is not a good rental property.

    DO NOT think Rent - PITI = Cashflow because you will lose money in the long run.

    Also, 20% down is standard for a non-owner occupied property these days...you will be very hardpressed to find less. Often times it will be 25%+. Keep in mind you will tyically pay a 1-2% higher interest rate as well.

    Feel free to PM me if you have any questions.


    Last edited by cycloneworld; 10-14-2011 at 01:17 PM.

  8. #8
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    Re: Buying Rental Investment Property

    Are you ready to be sued? Are you ready to be always considered the "bad guy"? Do you have any Mother Teresa in you? If your answers are yes..yes and no........have at it. You will find that no matter how you get into the business be it conventional or contract......your biggest headache are going to be the people you have a lease with. Not only because of non pay or the trashing of your property from time to time......it's because you are a loser who doesn't care about anyone, especially kids and won't fix up anything in your dump. And it doesn't matter how much you do or how nice the place is. Trust me.......been there, done that. Also, keep EVERYTHING business and don't ever get personal with people, or rent to family of friends(especially church friends) and you should be fine.



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