Paid off home—Perfect Rental—How Would You Get Started?

Question

My 3 bedroom 2 bath home is paid off. I paid for it with inheritance. I have never had a mortgage. I am a 38 year old female. I am in the LSU Business Management program working on my Bachelor’s degree. I have two dogs, but I have always been a wandering spirit. I want to prepare my home for renting, and my plans are to buy a motor home to live in for the time being. I am wanting to shed some of my material items to go chase some experience. My plans are to eventually settle in the Nashville area.

My home is about 1350 soft. Three other houses sold last year for $189,000. My neighborhood is older and is mostly renters or lease-to-purchase owners. I am in the perfect house to turn into a rental. I want to fund my life through managing properties and investments, doing a little bit of hair (I used to have a salon and now I just have about 2 clients a week that I still do for now), and I plan to get into small business strategy consulting after graduation. Rentals will not be my only source of income for the next year—but I want to get close to it being a significant source by the time I graduate LSU in the fall. I so have some updates to make on my home. It needs new appliances and some minor repairs. The major project will be the floors. I am ripping up the 40 year old carpet.

If this was your current situation (paid off house in my location) and had less than stellar credit, what would you strategy be to scale quickly but sustainably?

Patrick Roberts · Answer

Tackle your credit first. You will likely need financing to scale (especially to scale quickly), and investment property mortgage will not be cheap or even available with poor credit.

If you're wanting to use leverage to buy more properties, then once your credit is around 680+, one strategy would be to cashout refi your current property at around 50% LTV. This would hopefully maintain strong cashflow from the property will providing some capital to use for the next property acquisition.

If this will be your first rental, I would probably wait a year or so after renting it before scaling into more properties, especially if you will be traveling. You want some time to figure out your operations, get experience, and get good management in place before scaling.

I graduated from LSU's Flores program in 2022. Take any of Professor Chance's courses that you can. Reach out if I can help.

Travis Timmons · Answer

There are only 2 ways, as I see it in the current market, to get actual income/cash flow from a rental property - a paid off long term/mid term property or a well bought short term or rent by the room rental. You have one of those. Now you have to decide if you want the income or if you want to scale. It's not likely that you are going to get both right away. Like many problems in life, the answer is "What do you want most?"

Bruce Woodruff · Answer

I would work on credit. GEt some Credit Cards, spend a little every month and pay off, then get higher limits and repeat. Buy a few things on credit that you would just usually pay cash for.

I personally would not rush into a Heloc or such. You sound like a free-spirit and sounds like you want to travel and be unburdened....I like the RV idea, as well as the settling in Nashville eventually... (great town!)

You have plenty of time, don't rush this, enjoy yourself!

Nadeem Alamgir · Answer

Hey Claire, since your property is paid off, a HELOC or cash out refinance could help you access equity to fund another property. If you’re looking to finance a rental purchase, a DSCR loan could be an option, as it focuses more on the property's income rather than your personal credit score.

In the meantime, you can get your current property rent ready while also working on improving your credit. Boosting your score doesn’t take long, and there are services that can review your credit history and help you increase it within a couple of months. I know many of these services seem shady, but once you vet them out you'll find someone legitimate that can give you the full run down. Best of luck!

Paid off home—Perfect Rental—How Would You Get Started?

Paid off home—Perfect Rental—How Would You Get Started?

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