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Hey all, so I decided I am going to start investing in real estate; something that I can retire off of, hopefully within 20 - 30 years. ( I am 29 now). I believe by December I will have my first investment property.
However, I am a little nervous. I have a friend telling me (which he does already) to buy a single family home and rent out the top all utilities included, and basement for another fee. example would be my mortgage is 1200 a month. I can rent out top with 2 car garage for 1200 (utilities included) and bottom 800, making 2,000 - utilities and repairs
(utilities included)
My dilemma is, I would like to make at least 10% profit on each apartment condo house w/e
say I put in 20% to eliminate PMI on a condo and my mortgage would be 600. I would like to rent it out for 1000. (just an example) and just keep buying 1 or 2 rental properties a year till I retire.
Any tips, recommendations, etc? Am I living in a dream world where I can make at least 10% profit?
Hey young man, be mindful of your representation when borrowing. I bet you're going to apply for a loan for an owner-occupied purchase. While your intention can change over time, if you're intention is to not occupy the purchased home as your personal residence, you'll find owner-occupied loans are not available to you.
You would be better off buying a 4-plex and renting out the other 3 units. Still owner occupied and eligible for FHA financing if you need it, plus every one would be responsible for their own utilities.
If your local rental market is so strong that a SFH can rent for $1,200/mo, then most folk would see the advantages of buying that house that you say you can buy for a $600/mo PITI. Especially at today's low mortgage interest rates.
To then add another $600/mo rental income puts your $600/mo purchase showing a cash flow that is out of this world.
Don't forget that zoning or HOA issues may prevent you from renting the house out or from being occupied by non-related people. I watched a whole neighborhood in one city where the old 3-story sizable houses typically had tenants living in basements and rooming on upper floors discover that they were zoned R-1. What happened was a new homeowner, a lawyer, wanted the privacy and lesser traffic that the strictly one-family zoning specified for the area. He complained to the city zoning authority who investigated and proceeded to notify the surrounding homeowners that they needed to comply with the zoning. More than a few households lost the income they relied upon to make their house payments and upkeep. (and many years ago, I was one of the many tenants there, having lived in a few of the basement apartments or an efficiency apartment on a 3rd story ... all illegal occupancies, but I wasn't aware of the zoning and those issues at the time of being a college student).
As pointed out above, if your intent is to buy the property for rental purposes and not as your primary residence, you're in a whole different world of mortgage requirements to qualify for the loan, down payment, and terms. Every SFH primary mortgage app I've ever seen requires you to certify that the property will be your primary residence (the guideline I've seen is that you must make it your primary residence for at least 6 months) or you've set yourself up for fines/penalties.
Don't forget that rental property insurance is a whole different game, too. You will find it prudent to insure the property appropriately ... primary residence homeowner's insurance is a totally different set of coverages than what will cover you for an injured rental tenant with a lease. It's one of those little details that's "no big deal" until the day comes that a tenant has a valid claim against you. Then it will be a big deal when your insurance agent advises you that you're not covered .... and you're getting cancelled, too, because you materially misrepresented the property to be insured.
Being a new landlord, I would suggest that you start only with a duplex where you live in one side and rent out the other. Get your feet wet in the landlord/property management biz with only having to deal with one tenant/one property. You may discover that this isn't all it's cracked up to be. While I have done better than average, given over 30 years of rentals and property appreciation, my understanding is few folk net 1% on rental properties. You may find that you'll not cash flow to break-even for a first few years in a lot of rental marketplaces.
Be aware that the established pro's in the real estate biz in your area are not looking out for your interests ... they're looking out for theirs. I've seen more than a few really "great deals" on residential properties get snatched up by a RE agent on their own behalf so that they could "flip" it to a newbie investor like yourself. The big potential "upside" was snagged by the RE agent before you even came into their office when they bought the place for way back of FMV. Remember, these folk are full time pro's sniffing out the deals in the area ahead of you. The real estate biz is a knowledge game; good buying opportunities come to those who have their finger on the pulse of every property in the area they care to serve. Your ability to compete in this scheme of things is on the order of you being one of the first people a stockbroker calls with an IPO offer from the underwriting brokerage for the initial stock offering before the stock hits the market and sees that feeding frenzy where the stock goes up instantly on the first day of trading activity.
Buying now and expecting 10% ROI is a pipe dream. Unlikely to be possible.
You just can't buy a house and convert whatever you want to a 3 family either. Most places have codes and requirements to do things like that and it is VERY unlikely the house as a SFH meets those requirements. Additionally, many places flat out will not let you do it from the start.
So before you rush off and get in over your head you need to do the following:
Check the local zoning to see what you can and can't do. Make sure you are intimately aware of all the nuicances. Things like drive way width, height of the ceiling in the basement, requirements for meters and plumbing etc. all of which can sink your dreams right from the start or make it so expensive you'd of wished you had done your home work first.
Get a dozen comps for your area of rentals.
Make a budget that includes 15% minimum of vacancy as well as maintenance for roof, appliances and other stuff that crops up.
Re-evaluate your plans then. Being a LandLord is a great business, you just have to do it right and noobs tend to make a lot of the same mistakes.
correct but I never thought of the idea of buying a single family home, and renting out the top and bottom, separately. I am not sure where to go to find out if its legal or not.
I have a friend who is doing it already, but he does not know if its legal or not; he just did it anyways.
How do loans go if I am not living in the property, what kind of insurance, what is a smart money down to put down; etc
Just was hoping someone has experience with a SFH and renting out top and bottom; which was not talked about on my other posts
If it is designated as a SINGLE family home, chances are it is not legal to rent as a multi-unit property in your municipality..........
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