Newbies and need help and guidance.
We have been toying with buying a rental for a few years as cash has just sat. We were ridiculously close but decided against a single family home purchase. The guy we work with owns rentals himself. He actually bought one of the 5 duplexes in the area we are interested in and said he would have bought them all if he could have. He came recommended by a coworker who has used him to build themselves a nice side income. He is a good teacher and patient about explaining the ins and outs over and over. The contractor that built these units and managed them is selling and retiring. They units are all well built and under 10 years old. They are all in fantastic condition and have had long term tenants.
The guy helping us jumped his rent up a good chunk after purchase as his tenants were no longer on any lease but a 30 day. He had 1 move and the other re-sign. He was flooded with applicants as they are far superior for the price. The previous owner was doing lawn and snow removal and paying for trash and water. He did away with all that as would we. We would raise the rent between 50 and 75 per unit and it would still be well below the areas rents for a dumpy place. Rents for dumpy rentals are that price or quite a bit higher.With the small jump the rent it would be .9% of purchase price and still low rent for the area. We are not real concerned as these are newer units as far as massive repairs. They are well built and ready to go. The advice was to raise the rent just a bit and get rid of landlord doing lawn, snow and water to keep the current long term tenants. The advice was if you are getting new tenants to go up higher to hit the current area rents. The area is also becoming a very hip area with young adult professionals due to all the growth and fun things now in the down town area. 20 years ago I wouldn't have looked at that area. Both of us actually grew up close to it and that lower end was yuck! The city has sunk millions into making down town a nice place. A bit further down the hill apartments are going for $1000.
One side rented would pay the expenses if we were to finance. The other side would be pure profit. We could buy one outright. We could pay in full for one until and put 25% down on the other. We are leaning towards the two that are next door to each other if we purchase two. They share a coin laundry in one building. The units could likely be had for less buying two. He really thought we could swing a better deal for all 4 remaining but I'm not willing to go in debt that far. I'm debt phobic and a novice! They are priced to sell.
I am a big safety freak. The idea of financing one unit has me panic a bit. Logically we have a paid for home and the deal would still leave us $60,000 in cash and non retirement investments. I have had the idea of financing with 25-50% down explained to me over and over and how you make a higher % on your investment and have less $ at risk. To me personally I'll take a lower % for less risk and debt. Our cash is making 1% do not doing a thing but making me feel safe.
The plan would be to sink the profits into the mortgaged unit if we bought two and pay it off as soon as possible. If all goes well we would purchase another rental once that was debt free.
Our home is worth at a minimum $200,000 if one had to sell extremely fast. We have no debt at all. Dh said worst case scenario we would sell our too big for us home( kids are grown) and move into one of the units if we bought both. I do see his point. However that is not ideally somewhere I would want to live as I'm used to privacy , woods and wildlife.
I'm hoping I can get some guidance from those of you more experienced. I have seen it in black and white and see the great potential but am still freaking out due to the possibly financing one unit. As far as actually being a landlord we have completely rehabbed a home and do have the ability to do some of these things. I also only work 2.5 days a week compared to my spouses full time. So I do have time.
I'm hoping some of you with experience can guide me a bit here. It all makes sense on paper. Looks great. I am cool with paying cash for one but freaking over financing the other.