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I live in CA but I would probably buy back home in Michigan, in a college town. (Ann Arbor or Ypsilanti.)
The intent is really to make money off of renting out rooms. The strategy is to establish appropriate income verification over two years' time, buy strategically, hire a property management company... bada bing, bada boom, a somewhat passive income stream LOL. Now, I have been known to be delusional about these kinds of matters in the past and I imagine there are a painstaking amount of details and risks to quantify here, so please do school me, son.
Full disclousre, I am asking this question because this is one the main points preventing me from going to grad school. If I go to grad school, I'm going to be going hard in the student debt, a.k.a. no landlording for me in the near future I presume. But if this whole landlording sitch is kind of a pipedream anyways, I don't care about all that noise, know what I'm sayin'?
First are you going to buy properties with cash or loans? Then what is the rent for the area your looking at? I paid cash for my rentals, so after deducting property taxes, insurance, and repairs, I know I will still have a good amount of money left over. But if I had to pay a loan on top that would mitigate my profit. If you pay a property management then you have to deduct those fees too. Are you looking at renting rooms in house to college students?
To even begin to know whether this is financially viable for you, you need to know, at a minimum, the typical rent you can get for the type of property you intend to buy, how much it will cost you to buy it (and, as the other poster mentioned, how much you will owe monthly since it doesn't sound like you will be paying cash), how much property managers charge (and what you get for that money), and other costs (taxes, insurance, maintenance fund for the inevitable problems, etc.). Do your research!
Anecdotally, the people I know who have been landlords "successfully" (i.e. made a profit) have done so primarily because they have managed the property themselves and therefore did not have to incur the property management fee. Now that is a huge pain, mind you (do you want to get a call at 3am when there is a plumbing problem?) and impossible to do remotely. And even for these people, the margins are not big. All it takes is one bad tenant who trashes the place and causes much more damage than their security deposit, or months of no income stream between tenants, or a roof that needs to be completely replaced, to wipe out any profit you might get.
This is not an easy way to get rich (otherwise everyone will do it), but it is possible to make money this way if you know what you are doing (again, you have a lot of research ahead of you). Especially if you are buying in a market where prices are rising, even if you are not making much (if any) monthly profit, you are holding an appreciating asset that someone else is paying for.
Bottom line: I would never advise anyone to become a landlord unless they are very familiar with the process, risks, and the market they are planning to rent in. Furthermore, this is an endeavor that has some risk so I would never advise someone to become a landlord unless they have a financial cushion needed to absorb that risk. It does not sound like you fit this mold, so I would suggest you either pursue something else or take the time and effort to educate yourself about what it takes to be a landlord and build up that financial cushion.
Location: Danbury CT covering all of Fairfield County
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In my market, it be be possible to get a smaller condo (under $200,000) and rent it for about 1% of the of the purchase price every month, with the landlord paying for HOA dues and property taxes. For a single family, the numbers are just not there to purchase specifically for an investment purposes, a $450,000 home will probably rent out for $2800 a month with the tenant doing lawn care, snow removal, trash and paying utilities. Good with the neighbors if they find you are renting the house by the room
Well, it is, generally "realistic" to be able to make a good amount of money as a landlord. The actual viability of the proposition, though generally depends more on you and your knowledge, dedication and skills.
First off, I think being a long distance landlord is a bad idea. I think you can be a long distance LL if you've owned the property for a number of years and been a LL and then decide to move. But right off the bat, planning to manage and rent the properties long distance is a bad idea.
I used to represent people who were landlords and saw too often how they ended up screwed over. You have to be sure you have enough funds for unexpected costs -- repairing pipes or a heating system, not having a renter pay rent for several months and having to evict them, court costs of having them evicted, having a savvy tenant and a wishy-washy judge who feels bad for the tenant and allows them to delay the eviction because they feel bad, a tenant who sneaks (or doesn't sneak) in a dog who pees all over the carpets and eats the walls, a tenant has a fire and the place isn't inhabitable for some period of time, etc.
Then there are the ongoing costs -- real estate taxes, insurance, routine maintenance, potentially costs of having a service, running ads for renting the place, running credit and court checks on potential tenants, re-painting walls after each tenant, replacing appliances and carpets, etc.
The only way I'd become a LL is to have the property be not too far from where I live, to know that I am very familiar with the residential tenant laws of the towns where the property is located, know how to do an eviction, be able to rent the place out at a sufficient profit (i.e. the market value rent of the area is high enough to cover the mortgage and expected maintenance expenses, plus a chunk to have in a large enough contingency fund for unexpected expenses), know that I have enough $$ so that if I don't collect any rent for 6 months I don't go into foreclosure, and have a list of plumbers, electricians, and property managers that I know and trust. It is especially vital to have a property manager if you don't live local, but even if you do live local, you want to know some, because there will be times when you go out of town and if a tenant has a problem, someone has to deal with it, and, especially if you get to the point where you have many properties, you might not want to be bothered at 2 AM because a pipe burst in one of your properties.
Real estate investing of any kind is not a get rich quick scheme. If you become a Landlord, you really need to know what you're doing. Too many people who don't know what they're doing end up in bankruptcy.
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Seriously, All the money I've made is buying property guys like you think they can manage from across the country. You run it into the ground and when your bank just wants their loan balance back I buy it dump the $15 bucks a square foot you were too cheap to put back in it and find a tenant in a week. When I'm painting it because you never did it tells everyone in the neighborhood the **** hole owned by the guy from California who didn't care is getting fixed up and taken care of. If I need anything out of the city I get five of them to call and talk about what a terrible neighbor you were and please give me whatever I need.
How realistic is it to buy a home and make a significant income as a landlord?
You're not going to get rich by paying a management company to operate a rental house for you. (And don't even think about buying in Ann Arbor or Ypsi unless you intend to live there.) You may be able to build some wealth over time, but there are considerable downsides to consider. If you seek a passive investment, owning real estate is not for you.
The most important decision that you need to make at this point is whether you're going to go to grad school. If that's your goal, do it soon before it becomes too late. If you plan to go to U of M or Eastern, you might consider buying at that point to offset your otherwise expensive housing costs. Then you could be your own on-site manager, if you really want to become a landlord.
To buy a home and make a significant income is rare. In many places after the mortgage you would be lucky to make $100 a week in profit, if that and make sure to set some aside for maintenance or emergencies in case the tenant's fridge, stove, heat or AC goes out.
As other people said, you should rent where you live. Taking care of a property is hard enough, and even more so when you are thousands of miles away from it. Some people in this situation hire a property manager to take care of those things, however, they are expensive and will lower your potential income. If you do decide to rent out a property by where you live, then choosing the right tenant is the most important part of the process. A bad tenant will be a nightmare and will likely cause you to lose money instead of earn it. The first thing I do after meeting a candidate is charge an application fee that I use to pay for a tenant screening. I personally use https://www.myrental.com/ because they offer a credit report, criminal background check, and more. Then they take all of that information and compile it into a "tenant score" which you can use to easily rank each tenant.
Ann Arbor houses are old and very expensive just like any other college town. Students treat house very poorly & every year your tenants will change to another group of students who will treat it like trash. You will get your rent on time but lot of maintenance. We thought about buying there and realize you need to be living close to provide the type of maintenance. Property management companies charge portion of your rent.
Find out how much property management company charges & then figure out how much mortgage/tax/insurance you own per month & then figure out how much rent you will make. If the number in positive then go for it. Eventually the mortgage will be paid off & your fix cost will go down.
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