Breaking into the rental investments

[Mak3sha]

Good afternoon!

I'm trying to figure out the best way I can get into rental property investing. I currently own a home with a mortgage of 16k left and will be paid in full in 5 years.

My preapproval ranges from 68k to 78k at the moment. My downfall is I don't have a full 20% down payment yet and I would rather not move out of my current house.

Should I try to wait it out and save up the 20% down or go the creative investing way? Or should I pay off my current house and use it as leverage for another home loan?

Currently my strategy is to keep my current home the way it is. I owe 590 a month and have roommates that pay 900. I have 8500 saved as a down payment, two months ahead in bills, and I am saving over 1k a month. I want to be able to buy a rental property no hassles by the end of October (3k month income, 800 credit score, 20% down) .. or end of the year depending on how well my savings go.

The advice I hear the most from rental investors is they wished they had gotten in the game sooner. I'm probably over stressing.

Any insight would be wonderful!

[97guns]

it will be difficult to have 2 owner occupied mortgages, a bank will not issue another loan and if you plan to finance the rental as not owner occupied the interest rate will be around 6%

is there enough equity in your home now to finance a rental property? your best option might be to refinance and take out all equity for a rental and have it free and clear

[Mak3sha]

The house i have currently has a mortgage in a different name and the deed is in mine. So im not sure i have to claim the mortgage. Its a very complicated botched intestate inheritence.

[rennigade]

$16k left on your mortgage and its going to take 5 years to pay off? You may want to skip buying another property. Unfortunately you do not have enough money.

What other investments do you currently hold? Taxable ones? Retirement?

[Fishindude77]

My first priority would be to get your mortgage paid off. You are almost there, and looks like you have adequate roommate income to pay it off pretty quickly. Having a house free and clear is pretty nice collateral.

I still think you should have at least 20% down payment before jumping into an investment property, and as someone mentioned above the interest rates for this won't be as cheap as a mortgage.

Before pulling the trigger, take some time doing the math, and factor in all expenses you might have to see if it works. Don't overlook; insurance, lawn care, snow removal, building repairs & maintenance, repaint & re-floor between tenants, etc.

[sv2007]

...
The advice I hear the most from rental investors is they wished they had gotten in the game sooner. I'm probably over stressing.

Any insight would be wonderful!

Why sooner? Did you ask?
Sooner as in 10 years sooner? 9 years sooner?
BTW, 9 years ago, the real estate was at the top of the bubble. Although some areas have recovered to prices above 2007, many haven't.

In key to landlording is cash flow, specifically you aim to create positive cash flow. This way you've got staying power. You want to use leverage, I'd suggest a 50% down, it is conservative and gives you some time to sell (at loss) should the market crash (and taking your tenants with it). But you also gain that extra 50% leverage if the market continues to climb.

Having done it before, I will tell you that landlording is a pain (even with management companies). We become accidental landlords when we moved around and just rented out our old houses. Even with tenants that pays on time, you must constantly deal with repairs and property tax assessments (too high). For example, if it weren't for our old neighbors telling us about a hail storm, we wouldn't even know that one of our houses suffered damaged (renters don't really know much or care much about your house).

One of the first things we did was to get rid of all our rentals as the tenants move out once we retired. Stock market is a lot easier to deal with.

[clatoden99]

If I were you, I would invest rental income in a relatively safe, liquid fund.

That way you'll be able to use it on short notice should you have to pay for a new water heater or if you have an unexpected vacant month.

An ETF that follows the S&P500 could be a good bet, but keep in mind that you risk a loss as well.

[TexasHusker]

One of the first things we did was to get rid of all our rentals as the tenants move out once we retired. Stock market is a lot easier to deal with.

How many bear markets have you lived through ? And I'm not referring to 10% market correction here and there...

[sv2007]

How many bear markets have you lived through ? And I'm not referring to 10% market correction here and there...

Some may like rentals, but we've been thru for too many years to know what works for us. As for bear markets, we've lived thru a couple 2002 and 2008. Esp 2008 where a majority of our net worth in the stocks! Sure they drop in price, but they recovered.

I'm debating whether to rebalance some to fixed income now that I'm retired. But it is not a priority as wife and I can always go back to work (we're pretty young for retired people). But right now we've got some $ in cash, so it's a good time to rebalance.

One of the things that we want out of retirement is to have less headaches. So it was an immediate decision to sell as the tenants move out. Thanks to the good economy, many of our long term tenants decided to move out in the past and this year (painful on the tax but oh well.)

[sv2007]

The key to retirement is less headaches so you can live better; what's the difference if I have to still worry about management company telling me that an AC costs $12k to replace (yes, $12k! I've replaced many and I almost wanted to hop on a plane and take care of things personally).

Same with business, we do some consulting on the side, but once retired, we decided to just do enough to contribute to our IRAs. It is just not worth it to trade life for money when retired.