Hi!
Hi Guys,
I stumbled on this site when I was looking around for rental services that find renters for investors. I started to roll around the website and found it to be an amazing amount of wealth, and then I signed up, and here I am. I only spent about 20 minutes looking at the forums last night, so I know i have time to spend.
I, like a lot of people, never imagined being a landlord. In 2010 my wife was messing around on the computer and I had heard that homes were getting crushed on value (I wasn't following it or much involved in the stock market or investing at the time). Well, I told her "hey, look around the area and see what size homes are going for what amount.
Well, when I found out that homes were at a 40% discount, we decided we were going to move from my first home which I paid 150k for, 1300 sqft ranch, full basement which I remodeled, bought in 2003. We moved to an 8 year old new construction home about 2 miles away, 1900 sqft ranch, full basement (I'm remodeling right now hehe), and it is basically where I want to remain (I'm only 35 yrs old). Anyway, I converted my other home to a rental becuase I had gone under water (i bought it for 150k, put 30k down on a 30 year mortgage). My realtor through Century 21 found me a renter and they have been with me since. Very good renters, no trouble, in their late 50s, the man is retired, the woman is about to retire, and they have 1 son that's about 26 years old living there.
I originally was happy with them just covering the mortgage for me, but I don't know what it was, this past weekend I was jogging on the treadmill and I started to think "you know, maybe I have been looking at my rental all wrong." I am at a -20 a month cash flow. Well, the month before we decided we were going to move, I had already initiated a 15 year refinance. So, I crunched the numbers and if I refinance back out 30 years I can go to a positive 320 a month cash flow.
Then i started thinking, this stock market sucks, maybe I ought to take more of my future into my hands and start a small rental business. And that is where I am at. I am a worrier by nature and I don't like risk, but frankly, there is risk in everything.
So, my current situation is that I have 1 rental, about to refinance back out 30 yaers to go to a positive cash flow, and I am sitting on 60k in cash and a 2002 trans am ws6 with 18k miles that I bought 2 years ago for 20k in minute condition that I'm willing to sell and will sell so I can be sitting on 80k in cash to buy another rental or two.
I am an engineer by heart, and so I know that i need to make a business plan, crunch the numbers, and get my business plan all together before I start buying anything. But, I've begun to read that beginner section on this site and am learning quickly, trying to catch up.
I'm probably going to be in the market for homes that are 80-100k or so, that require no more than 20k for a 20% down payment on a 30 year. I'd like to stay with decent homes than go into the lower class homes.
I am excited!!!!
I will ask one question though, in that chapter about the 3 rules, especially the 2% rule. I think it says the 2% rule is if the home is valued at 100k, then 2% of the value should be the monthly rent, or that should be what you try to get as close as possible to. It seems like a stretch to me. This area is more like 0.8 to 1%. I'm getting less on my current rental because I haven't raised the rent much on them since they are so good at paying early/on time and are no trouble, but if they were to leave, I'd raise the rent by 200 bucks.
I get 1140 on my rental, and when i look around on zillow or on other sites it seems like the average is more like 1250ish-1350. And, my rental has a fully finished basement so it's more like 2600 sqft.
Anyway, does anyone else think those 3 rules are a little high? I wonder if the author was from an area like New York or CA or something.
Here in michigan it seems very high.
Anyway, thanks everyone for the advice and I look forward to learning quickly! I want to get started next spring on buying my 2nd rental.
Oh and finally, the home right next to my rental is going on the market soon. It was foreclosed on almost a year ago and it does need some exterior work, but if I could get that house at a nice price, owning 2 rentals in this neighborhood and school district would be great I think. I just don't want to pay too much, but at least i know what i could get for rent and what my cash flow would end up being based on what I want to pay.
Here's to analyzing the business plan to ad nauseum :)