Buying a new house and a rental property. What should I do?

Question

I am wanting to buy rental propety and move to a better location. I'm trying to figure out what is the best way to do this. I know the best and less risky way to do this is buy a rental property and live in one unit and rent the others. However, the only rental properties I  an afford around here are in lower income areas. I forgot to mention that I have 2 young kids, one that started kindergarten this year. So the school districts in these areas are not so good.

In the house we own now, we have about $30k in equity that we can borrow from. I was thinking that I could use the equity from this house for a down payment on another house. I could get a FHA laon on the new house so I will have some left over to make a down payment on a rental property. Is this crazy talk? Can this be done?

I would rental out the house we live in now. However, we would probably just break even on it. I was thinking just renting it out for a year and then selling it and then using the equity we get from selling to use as a down payment when we refiance the new house. The rental properties I'm looking at are 4plexes and I could possible get one for $90k. I calculated that the monthly cash flow would be around $400.

I'm looking for any kind of guidance on this. I'm just trying to get in the real estate investing game as soon as i can. Thank you for any advise you can give me!

Trina Hanks · Answer

Thank you for the responses!

@Elizabeth  C.  My goal is to buy and hold enough properties that would provide enough cash flow to be a second income for my family. I'm mostly interested in 4plexes and duplexes (multi family) and I have 2 targeted areas I would like to invest in. The reason why I want to move is because I don't see much growth in the area we are in now and we have also lost equity in our house. I want to move somewhere that would be a better investment for us. I was also wondering how much money should we have in reserves before we purchase a rental property?

Alin is probably right. After I typed the post out, it started to sound a bit risky. I'm just eager to get started and I feel I'll miss out on all the good deals if I wait to long.

Should I wait however? With my situation, does anyone have any advise how I can get started? Thank you for any advise you can give!

Elizabeth Colegrove · Answer

@Trina Hanks

What are your goals? Why are you moving from your personal property? What kind of rental do you wish for? Do you have enough money in your budget for ohshit money?

We are buy and hold investors investing for the long term. We self manage long term and one of our key strategies is keeping our personal properties and renting them out when we are transferred. We don't follow any of the bigger pockets rules and have much smaller margins. At the same time investing in the nicer areas allow us to self manage, no vacancy and smaller repair costs.

Our goal is to have the properties cash flow enough that my husband can permanently retire at 44 with a navy pension. Therefore we have time to allow the cash flow to appreciate and grow.

While there are MANY people who do very well in lower income areas there are also lots of stories with the issues. I and my husband work full time. My husband is never home. So I need properties that I as a caucasian female, red headed women who only speak English and German can manage.

Definitely do some research on this blog focusing on people that have been successful with what you are looking at doing. Also check out different peoples signatures. Many people discuss their philosophy's strategies etc on them. Mine talks about operating at smaller margins, self management, and turning personals into rentals.

P.S. Also note that selling your house with cost at least 6% with realtor fees often 9.5% with closing cost assistance.So I always round to a neat 10% when figure out if its worth selling.

Anil Samuel · Answer

So the house you are currently living in will break even and the rental you want to invest will have a net cash flow of 400/month?  Just curious will you have enough buffer for the new home you will purchase?  I would be cautious not to spread yourself too thin.  You can always move to a better area and wait to purchase a rental.