Investment properties! A risk to take or run from?

Question

I am seriously considering buying my first investment property in W.Babylon,  NY. Everyone around me says I am out of mind to ever consider renters when, as a cop for 14 yrs I do know the horrors of them. However I think with the right tenants it would a business decision I would not regret....or would I? Just a little advise please!

Jon Holdman · Answer

Well, you have a good background for reading people and for dealing with conflict.  But you need to be careful not to treat tenants like perps.  Screen as best you can and realize that stuff happens and you can't always get it right.

The numbers are really important.  The number one thing, IMHO, is cash flow.  Often new investors are told "cash flow = rent - PITI".  Not even close.  You have a lot more expenses than just taxes and insurance.  That's probably the number one error.   Second is that you need cash to be in this business.  Cash for down payments, cash reserves for after you own the property.  A text message from a tenant can turn into a $6000 bill, like it did for me last summer.  That's infrequent, but it still happens.  More commonly such a message means a $300 bill or no rent next month or other more minor issues.  Cash is the cushion that gets you through these bumps.

So, give us the numbers on your prospective purchase.

Edith TenBroek · Answer

OK, I'm a total newb, but I've been practicing running numbers.  Tell me if I'm on the right track

Using a gross estimate - the 50% rule...

Assuming no upfront renovation is needed...

Your gross monthly rent ($3300)  minus 50% (taxes, insurance, upkeep, vacancy, am I forgetting anything?) equals $1650

If you compute a mortgage rate of $853 (25% down, 6.5 percent, 30 year) you have a monthly cash flow of $797.

This looks like it's worth a look.

Now you get into specifics, like actual taxes, actual insurance, records of previous work done on the house, actual vacancy rate, and any need for larger improvements like roof, HVAC etc.

Then run that against actual mortgage numbers and see how you stand!

Am I forgetting anything?

Tamika Mays · Answer

The  house is a short sale listed for $180k, tenants upstairs currently pay $1800 for 3 bed 1 bath and full access to the yard, and tenants in basement pay $1500 a month for 2 bed 1 bath, both tenants pay their own utilities. Taxes are approx $7k a year

Robert Leonard · Answer

@Tamika Mays I think you should follow the advice of successful landlords about whether or not its a good idea to become one.  It isn't for everybody, but a lot of the skills it took to be a successful police officer will pay dividends in dealing with potential tenants like @Jon Holdman stated so well above.

You'll find lots of successful landlord/property managers here on BP who can help you decide if you've found a great way to invest or if you should invest elsewhere?

Wesley Merriweather · Answer

Tamika,

First Rule of Thumb and something I had to learn too, don't take the advice of those around you especially who are not in the business. Yes, I believe there were some tips given to you without realizing if any were previous landlords, which was..What Not To DO. It comes down to continuing educating yourself and finding out the "WHY NOT", quick There are many avenues to pursue in Real Estate so explore and find YOUR Niche.

Speaking beyond my current scope of interest I believe Buy and Hold would be a great avenue, definitely a route I'm looking to get into!

Good Luck

James Wise · Answer

@Tamika Mays welcome to the site.

As an owner of many rentals I can tell you that I love rental properties.

Many people on this site have gotten very wealthy with rental properties.

I think if your looking for a push in the right direction you came to the right place.

Investment properties! A risk to take or run from?

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