Planning Stage
Hi,
I've wanted to get into real estate for a while but being in the militry prevented any real opportunity. Anyways, I'm retired now and my wife is still active duty. We just purchased our 1st house in California, April 03. We are applying for a 5% loan (with 2 points) for the lowest possible monthly payments and taxes all impounded. The appraisal came back with an increase of 50K since April of last year and we are in a desireable neighborhood (good schools and shops nearby) and close to the military base. We will probably be in the property for 1-3 more years before our next transfer. Our plan is rent preferably to military people (since we know the system) and let someone else pay for the mortgage and taxes and then some This should allow us to continue building equity and provide us with a positive cash flow each month. Finding qualified tenents shouldn't be a problem. We intend on runnning credit checks on everyone. We have enough in reserve for appliance breakdowns and any other things that may need quick cash. Is this sound thinking? My question is, does out-of state landlording present special or unique challenges? And also, my wife is surrounded by nay-sayers saying "It'll never work". "You can't do that", and it rubs off on her, second guessing doing this. I know being a landlord is not all peaches and cream and will take more effort than I sometimes think. Does anyone have thoughts or advice on this? I want to have all pour ducks in a row and not be paralyzed into in-action and do nothing. Sorry if I'm rambling, been up since 6am with my 2 kids. Guess I'm just looking for reassurance to do it.
Thanx
Dyeman
lets make it easy.
Think of your self when you were a renter. How difficult were you to deal with?
A credit check a good deposit and maybe a mgmt company that takes a small portion of the pmt might be the way to go for you.
Do you know what a boat is? It is a hole in the water you just keep filling up with money.
Renting for just the amount of the mortgage payment will put you in a negative cash flow position at the end of the year. If the market rent does not support your property with a strong positive cash flow after all expenses and debt service, then this house will just become your boat.
The reasons to invest in rental property are Cash Flow, Appreciation, and Tax Benefits. If you have a negative cash flow, then your tax benefit has to be sufficiently high to offset other ordinary income for you to get a real benefit (a tax savings larger than your negative cash flow).
If the property is in an area experiencing rapid appreciation, then this maybe a reason to carry a negative income property for a couple of years as long as the appreciation outpaces your negative cash flow.
Unless you will be able to take advantage of at least two of the reasons to invest in rental property, then you should probably consider selling on a contract for deed, or a lease option, when you leave the area.
Search the article archives and find Ron Starr's article on "Advice for the Beginning Investor".
Thanx for the replies.
The mortgage, insurance and taxes will come to about $2,235 a month. We should be able to get at least $2,400 a month, hopefully more by the time we leave in 1 -3 years. Add in the appreciation and the tax advantage and I'm thinking we'll be in a good position. I plan on checking out the rest educational materials from the site in the meantime. Am I on the right track?
Thanx again,
Dyeman
You absolutely need to know what you can rent your house for. Start calling on every for rent sign you see in your neighborhood. You might even call a large property management company and ask what you could get for rent. But my experience with this is that many will tell you what you want to hear to get the business.
$2400 rent on a house with a payment of $2400 a month is out of line with the norm. Higher end houses typically do not make get rentals because the gap is too large between the mortgage payment and the rent.
Thanx bgrossnickle,
Are most rental properties geared towards lower income levels for maximum profit? I'll check the local papers for compareables. If we cannot get positive cash flow out of this place then we'll probabally just end up selling, taking the profits and going to our next assignment. I believe DaveT said it right by calling the place a sinking boat otherwise. Thanks for any help, as I said, I'm just getting into this and would like to have our ducks in a row before any final decision is made.
Thanx,
Dyeman
You make money in this business buy recognizing the opportunity where others does not. When I look to buy a rental property I want several parameters to work my way:
1) Building Square Footage
2) Size of the lot
2) Condition and
3) Price
I do that because I always have ideas that would dominate the market. Not follow it. Look for the building that have rents below market value, are owned buy absentee landlords or husband and wife that don't like each other any more (bankruptcy court). Keep us posted on how it goes.
Thanx Omega1,
This is our primary residence at the moment and when we transfer to the assignment we'd like to rent the place. When we get to the next base we'll probabaly end up buying another and doing the same if we have a decent experience. Right now I'm scouting for the best type of mortgage that will allow for the greatest +cash flow, building equity and getting tax benefits. Talking with a broker he's saying that an adjustable is the way to go, he's sending the info as we speak. He said a 30 year fixed is the expensive way to go. More questions on that later.
Thanx again,
Dyeman