Hello. I am new to the forum and tried to do a search so forgive me if this is a repeated question...
I purchased my second rental property in Atlanta last year. The purchase price was around $85k. I put down 20% and after minor repairs, carpet, etc., I spent about $25k(including down payment and closing cost) out of pocket.
I rent the property for $1100 so I am making a decent return after my monthly mortgage and taxes.
I guess my question is...is it all worth it? On average, after a few additional repairs once the tenants moved in, the lawn services and other miscellaneous cost, I will probably net around $4,500 over the span of this tenants annual lease. (I don't use a property management company, the teants pay utilities, so they aren't any additional cost I'm not factoring in. All I cover is the lawn, taxes, mortgage, sewer, insurance which monthly runs me around $575)
I love real estate and want to buy more homes but am feeling a little discouraged when I think about the amount of money I put out, and the amount of time it will take to recoup my initial investment.
So I'm asking....Is it all worth it? Am I doing something wrong by having to put out so much money? Is my output/return normal?
Is this just the life of an investor? I guess some positive reinformcemnet or encouragement that this is the norm is what I'm hoping for. But on the other hand, I would LOVE and greatly appreciate to hear what I'm doing wrong. I am eager to lear as much as I can.
You are putting 20% down on a house and effectively, someone else (your tenants) are buying you the other 80%, plus you get residual money every month. This is why people do it.
Your COC return is 18%. I would take that all day long coupled with depreciation and the tax advantages of owning rentals.
You might consider specialized housing like student rentals, 2-4 times more rent for the same property.Atlanta is the #4 market for student housing in the country.
It's definitely worth it, but try to think about the long-term. $4,500 / year may not seem like a lot, but what about when you have 10 of them, or more?
And consider what those numbers will look like once you have the homes paid off? Do things right and I bet you'll be very happy in 10 or 20 years.
I'd just like to say a HUGE thank you to everyone who responded!! It means a lot to have people who you can bounce ideas, doubts, mistakes, etc off of!
Would you elaborate on the "tax advantages". The properties I own are fairly newer properties so I don't have high repair write offs come the end of the year. Besides the basics (my mortgage interest, and other small things) I never feel like my write offs seem to add up to much. Can you cover some that I could very well be over looking?
Thanks again everyone!
It all depends on your goals. I can't stand SFR investing and I just do not care for it. Some love it.
You might could have ten houses paid off in 15 years etc. but do you want to deal with residential tenant issues for 15 years affecting your life in a negative way?? For some landlords it doesn't bother them.
If your property is newer and you hold for say ten years etc. you will have bigger expenses hit bringing your cash flow down in the middle to later years as bigger ticket items start wearing out.
1,100 in rent for 85k is not bad. It's a lower plus one percent rent to sales price ratio.
The real question here is what is your long term plan?? Do you want to self manage and buy yourself a job?? OR Is the goal to break free and have peace of mind with more passive investing??
There is no right or wrong answer just defining the kind of life you want to have.
@Joel Owens I am trying to evaluate my long term goals/plans now which is why I think the initial question even grew in my mind....If I'm putting (on average $20-$25k initial investment) on a rental property, have to wait approximately 5 years to see my initial investment returned, and to run into possible tenant, repair issues as the years progress, am I doing the right thing or am I better off leaving these annual $20-$25k investments in the bank?? Obviously no bank is offering that type of interest return so my money would not grow as fast but I also won't have to deal with potential unforeseen issues properties bring.
Initially, I thought, I'll buy at least 2 properties a year, sit on them for as long as I can, hopefully make a nice monthly net return and eventually sell them off when I'm ready to retire. What are your thoughts about that? Am I naïve? Is this realistic?
But I do love the hunt. I love finding properties, getting the work done, finding a tenant, etc...so I am passionate about real estate but I'm also passionate about investing wisely and seeing my money grow the best way possible.
I guess being a yopung investor I just want to hear that I'm doing the right thing from more experienced investors...and if I'm not, advice as to a better route to take.
Is there any discount value on the table, forced appreciation, or just general appreciation in the future? If so you may be able to cash out refi in a year or so depending on how long your bank requires you to season the loan. Then you may be able to get all of your money back out of it. That is if you can do so and not go cash flow negative.
Your overall plan seems great! I'm in a similar situation. I did a few wholesale deals and then a sweet lease option all in hopes of saving up for the big down payment. Gathered my cash & went looking for a 'smart' investment. In my search I found an investor that was super easy to talk to and found out he was dumping his portfolio of 5 properties to move to a different state for his full time job. While talking with him I brought up the idea of seller financing.. His eyes lit up! I've never done such a deal before and thought I was in over my head. Brought the idea to my lawyer and he said, "no sweat!" The whole process was so much easier than dealing with the banks, underwriters, etc. I don't think I can ever purchase with conventional financing again. Plus, we were able to do the deal with about 7.5% down and 4% interest. Now I'm looking into private lenders for similar deals. So, my suggestion to you would be, tweek your short term focus but keep your long term goal. Forget about banks with their 20% down BS. Stay off the MLS, call every 'for rent' number you see on houses. If you get creative, you will find the deals! ;)
All of the replies you have received above but it might help to clarify your thinking somewhat if you don't think about what you receive on an annual basis as to how long it will take to return you investment. It is more income on your investment. An analogy would be how much interest would you receive on a bank account. You are obviously receiving much more income than you would have if you had put the money in a CD. To follow the analogy farther, you will get your initial investment back when you someday sell the house. With a bank account you will only get your initial investment back. With the house there will hopefully be appriciation added to the initial amount. Sometimes you have to adjust your thinking a little to realize all of the returns you are getting. Sounds like you are doing pretty good to me.
Thanks again everyone! I guess I needed to hear experienced perspectives and this definetly helped me!
Based on your numbers, your COC return is 20%. Good return for sure. One thing, do you manage your property on your own? If so, you need to count 8-10% management fee in operating expense. In this case, your coc return will be lower.
I personally think that's not a great investment. I usually buy houses between $30,000 and $50,000 put 5k to 10k in them and rent them between 700-1000 a month
I personally think that's not a great investment. I usually buy houses between $30,000 and $50,000 put 5k to 10k in them and rent them between 700-1000 a month. Also I'm in Ohio so I don't know where you are but in Ohio's market this is normal
I would love to find a property for $30k that only needs $5-10k worth of work. In the market I'm in its very rare...and if you find something like that, its usually not in an area someone will want to rent in...or a tenant I would necessarily want to rent to. Even Section 8 has certain neighborhood stipulations that limit them from approving homes in certain neighborhoods.
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