Getting Started in Rentals

7 Replies

Hello BiggerPockets Community,

I am looking for some advice from some experienced real estate investors. Little background, I’m 27 and currently live in a 1000sq ft home. It’s 3 beds, 2 bath, finished basement, and two car detached garage in the suburbs. I bought the home for 148 about 3 years ago. The estimate on it is currently 180-200,000. 

I am in the process of closing on our hopefully forever home, much larger with some property. I have been reading lots of information to make the best move. I know real estate is where it’s at, and my first initial target to get started was a single family home rental. My plan was to rent out the house I’m currently living in. My mortgage plus escrow is 996 a month, and rent in the area is about $1500 a month. 

My question to is to rent out my current home once I’m out of it, or sell the home while market is high, and hopefully buy two properties or a duplex kind of in the same area. I know I used my two primary loans, so I’ll need 15% down on my future properties.  The plus side is I know the house I’m currently in and will have more risk buying a different house. What would be the better financial move here?  I look forward to learning and becoming a successful real estate investor!

Thanks in advance,

Preston

You should sell the empty house. You bought it at market price to live in, not as an investment. I would sell it and purchase an investment property at below market price. When you buy a property at market price and then try to rent it out at market price, there is no margin. You must buy it right in the beginning or else it doesn't cash flow.

Originally posted by @Anthony Dooley :

You should sell the empty house. You bought it at market price to live in, not as an investment. I would sell it and purchase an investment property at below market price. When you buy a property at market price and then try to rent it out at market price, there is no margin. You must buy it right in the beginning or else it doesn't cash flow.

 Wouldn’t you basically always be buying at market value? So sell now and wait for housing to dip?

Originally posted by @Preston Strohm :
Originally posted by @Anthony Dooley:

You should sell the empty house. You bought it at market price to live in, not as an investment. I would sell it and purchase an investment property at below market price. When you buy a property at market price and then try to rent it out at market price, there is no margin. You must buy it right in the beginning or else it doesn't cash flow.

 Wouldn’t you basically always be buying at market value? So sell now and wait for housing to dip?

There are distressed properties to purchase below market at all times. In this market, it is just harder to find. There is always someone who needs money more than the property, but these are not listed online with a broker. To find a good deal, you have to look off market. An investment property should be purchased well below market value and rented at market value.

@Preston Strohm - I would rent out your present home. What difference does it make whether you bought it at market price or as a killer deal 3 years ago? Appreciation has been in your favor and you've paid down the mortgage during this time. Most investors look to buy based on potential cash flow. Your present home that you will be vacating already appears to have pretty good cash flow potential (unless there's some hidden maintenance or capex that we aren't seeing). Is it the highest cash flow you could squeeze out of a property? Probably not.  Would there always be some better off market deal somewhere? Probably. But hey, why not start with a good base hit? Rent this one, buy your forever home as a primary and get into saving gear to purchase that next investment property. In the beginning of landlording, the less unknown variables the better....

Originally posted by @Tim Johnson :

@Preston Strohm - I would rent out your present home. What difference does it make whether you bought it at market price or as a killer deal 3 years ago? Appreciation has been in your favor and you've paid down the mortgage during this time. Most investors look to buy based on potential cash flow. Your present home that you will be vacating already appears to have pretty good cash flow potential (unless there's some hidden maintenance or capex that we aren't seeing). Is it the highest cash flow you could squeeze out of a property? Probably not.  Would there always be some better off market deal somewhere? Probably. But hey, why not start with a good base hit? Rent this one, buy your forever home as a primary and get into saving gear to purchase that next investment property. In the beginning of landlording, the less unknown variables the better....

 That’s what I was thinking. Buying another property there might be costs I’m unaware of. I understand anything can happen, but I know this house has good roof, windows, and basically everything else. Basement waterproofed etc. Only thing I wanted to do was redo the bathtub and add blinds, but wanted to start renting so those become expenses and tax write offs.

Originally posted by @Anthony Dooley :
Originally posted by @Preston Strohm:
Originally posted by @Anthony Dooley:

You should sell the empty house. You bought it at market price to live in, not as an investment. I would sell it and purchase an investment property at below market price. When you buy a property at market price and then try to rent it out at market price, there is no margin. You must buy it right in the beginning or else it doesn't cash flow.

 Wouldn’t you basically always be buying at market value? So sell now and wait for housing to dip?

There are distressed properties to purchase below market at all times. In this market, it is just harder to find. There is always someone who needs money more than the property, but these are not listed online with a broker. To find a good deal, you have to look off market. An investment property should be purchased well below market value and rented at market value. 

That is good advice. Sounds like I have more research to do!