[swanson719]

You don't have the income to buy this property and rent it out. A bank will want 20% down or more if it is not your primary residence. You also will need to have balloon insurance in case something happens with the property and you're found liable. You only have $3,800 in liquid savings. That's not enough to really be called an EF when you consider you're living at home, don't have full time employment, and are still going to school.


All of that aside, when you go to purchase this property you're going to have to pay for an inspection, which will be $250 right off the bat. Then to fix any minor repairs, which there surely will be with a house of this age, you're looking at another $500 ballpark. Then paint, a few minor upgrades, and you're at another $500 minimum. So $1,250 before you even list it, realistically.

Figure it closing costs. Probably around $2,500. Mortgage is now $26,500. Figure in a 6.75% interest rate because it's not your primary residence and you're not putting 20% down. This is if you're even able to get a mortgage. Not an easy thing considering traditional mortgage guidelines need a $50,000 minimum. Lower than that, it's a personal loan which needs collateral. Call the house collateral if it appraises high enough. Now instead of being a 30 year note, it's a 10 year note because it's a personal loan instead of a mortgage. And it's still 6.75%. You're mortgage payment a month is now $300 and change without insurance or property taxes. Call it $50 a month for insurance, which is realistic if not a little high. Property taxes are $200 a month. You're looking at $550 a month note for 10 years, if you're able to buy it.

Consider you get it for $20,000 and no closing costs. Unlikely, but possible. Now, you have the 20% down next month, if you're lucky enough to find a lender willing to lend to you. However, this only lowers your note to $480 a month.

You have a monthly net after all expenses of $750 working part time. That now becomes $270. And you would have absolutely nothing left in savings to make any minor improvements or upgrades to this house once you bought it, let alone any savings to cover your own unexpected expenses.

So you're spending between $5,760 and $6,600 a year in "mortgage" costs alone on this property. Upkeep averages 1% of the property value a year. If it's really worth $100K+ you're ballpark of $1,250 is about par. So now call it $7,010 to $7,850 on note payments and upkeep.

Let's suppose you get $750 a month in rent, and it's rented 10 months out of the year. You're up to $7,500 a year in rent payments, but paying between $7K and $8K a year in note and upkeep costs. Even rented every month, you're personal income is dependent on the rent being paid on time. Let's say that doesn't happen. It takes 90 days to evict a single man. It's practically impossible to evict a single mom with kids when the weather is bad. You don't have 4 months of rent in savings. Three to cover the note during eviction, and at least one more to cover the month minimum between eviction and finding a new tenant.

Not to mention you still would need the $1,250 in maintenance costs in savings before you rent the house, plus advertising costs.

It's a losing game unless you have a) the cash up front to buy the property or at least put 20% down, b) a full EF in savings for you, c) a full EF for the rental, and d) extra insurance to cover liability on the rental.

You have none of these things. I've been in your shoes, staring at what would appear to be an awesome rental property, a real cash cow. But it takes a lot of capital up front to be able to pull the trigger on that kind of thing without putting yourself in jeopardy. These are all things I learned from trying to pull the trigger.

Why not buy that for yourself, have it paid off in a few years as your income increases, and then move up in life to a bigger better deal, and then rent that place out, or when the market comes back, sell it for the $100K you say it's really worth? Would that not make a heck of a lot more sense? And that's something realistic, that could be done without too much hassle.