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I've convinced myself that spending $75K or so I've saved up as a down payment on a $300K rental triplex is a fantastic idea. Its in a very upscale neighborhood (lots of million dollar mansions in spitting distance) with excellent schools (one of the top publics in state), train access to philly and an extremely walkable down town (5 min walk from the property). I saw in another thread someone mention that rents should be 2% of property value, everything I've looked at in this town is 1% at best. This property is currently renting for $2800 for all three units. Renters in the area include a healthy mix of college students along with everyone else priced out of super expensive houses. The area is old. Old houses, old neighborhoods, old money. The triplex is 110 years old.
My plan is to live in one of the units when it frees up and do all maintenance and upkeep myself. Tips, pointers and criticism are all welcome
Good idea, I think. Budget for maintenance. Perhaps join a local real estate investment group (go to meetup.com) so you learn all the many rules about being a landlord and also so you have a network to help you find investment friendly repair people who others have had positive experiences with. You may want to consult with a real estate company to help you find good tenants.
We own quite a few rentals and that 2% that is talked about in the other thread is just not possible here. I'd actually love to see WHERE it is possible.
Anyhow, in hindsight, I do wish we would've bought a 2-flat when we were first married - and I'll encourage my own children to do something similar as well.
The gross numbers look pretty good and the neighborhood attributes sound good. Looks like a winner to me.
The rental calculator is OK too, just overestimate on the expense side and go conservative on the income side. You will probably end up going into more detail as you go. I just use an Excel spreadsheet
One thing I will recommend is understand real estate (passive income) taxes. And do it right away as you undoubtedly are already running up expenses. Until you get yourself knowledgeable, keep track of every expense including all your driving miles. Even if you choose to use an accountant, I would highly recommend you understand the process. You will have to make decisions throughout the year and may not have access to your accountant on what to do.
It will also force you to do a proper job in accounting.
With the property being 110 years old, make sure you have a good home inspector and make the contract contingent on the home inspection. Also, you want to keep money set aside for repairs... and again with a 110 year old property, you want to keep MORE money set aside than your average rental property. Also, check into lead paint inspections and if your county/city requires rental property inspections.
Here are some random thoughts... in no order of importance....
When you're looking at the properties, ask the tenants if there are any problems. Also, you want to see the leases before you sign the contract, so that you know exactly what the tenant and landlord are responsible for (ex: utilities, furniture, rent price) and make sure you know exactly how much money each tenant gave for the security deposit. You might also want to check with the county/city to make sure that the property is listed/zoned as a triplex. Look at how many electric meters and water meters are located at the building. Also, who's responsible for cutting the grass and (not sure where the property is located) snow removal. When you're calculating your rental income, don't use 12 months of rent. Whenever a tenant leaves, you'll need to do some work and find another tenant. This could take a month to 2 months, so you need to factor in this down time where there's $0 rental income.... but you still have to pay your mortgage.
Just some things to keep in mind, but in general, a triplex is a good way to go financially, especially if you're planning on living in one of the units.... but make sure that the numbers make sense. Just remember, that the tenants know where you live and they'll be knocking on your door whenever there's a problem.
What would be a ballpark amount to set aside each month for maintenance? $200,$400? I was at the bank discussing things and was told leaving $10,000 off the down payment and keeping it for emergencies instead would be a good idea. Sounds like a safe bet to me, but would I still want to budget repair/maintenance costs in the monthly figures going forward?
Again, thanks for some really solid advice. I think I'm going to make a notebook with all these considerations inside.
where are people saying 2%? I guess if the values of the homes are really low.... but then nobody would rent, they'd just buy it
Sounds like a great idea if you can swing it. I agree, you'll need an emergency fund and a good budget for maintenence, etc. You'll always be working on something, and the income will help with the mortgage but not any repairs or upgrades I would guess. I'm not an expert, just a first time home owner and a child of a landlord-- every time somebody moved out my folks would make us paint, haha!
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