First Home Not Good Rental

[Chris Carbonell]

Hi BP! My wife and I are looking to purchase a SFH in Madison, WI with a budget of about $250K. We've really just started looking but our goal is to find a place to live in for about three years and then rent out afterwards.

The problem is that our budget is making it pretty tough to find a good investment property in Madison. For example, we found a place that could rent out for about $2200 (based on average rent from PadMapper) but a conservative estimate of the expenses would be closer to $2500 (based on BP calculator) so we'd be losing out on this particular property.

We're currently renting a place for about $1300/mo. If you were in my position, would you buy a property like the one above even though it didn't make a good investment property? On the one hand, we'd finally be saving money on rent and building equity instead. On the other hand, we'd be banking on appreciation and rent inflation to make this property a viable investment.

[Kyle Doney]

I wouldn't buy the property in your example if you're thinking you want an investment property you can rent out down the road. Even if your area is seeing significant appreciation, its not a good play for what you are looking to do. 

If you and your wife can deal with tenants next door to ya, you should look for a 4 plex. You can get good financing on 4 units or less, pay the mortgage with all the rents, and live there for 2 years and after that keep it as a rental or sell it and keep all the profits tax free (If value goes up). Good luck!