Investment/Income Property - Good Idea or Am I crazy?

Sounds good to me...


inspections, definitely.

I'm told that purchasing rental property is a good way to get wealthy slowly.

In retirement my father bought a 20 or 30 unit mini-storage property, both as something to do and to generate income. He did quite well with it before advancing age made him sell it.

I do not have the temperment to be a landlord. But for someone who does, this can work out nicely.

If it is as good as it sounds then go for it.

But then..
Have you really considered all the costs or potential costs?
taxes (which will go up), heat and utilities, what if you are without a tenant for 6 months?, What if there is a major repair required in the first year such as a furnace?

As long as it pays for itself with a little left over then it's a great deal.

I will pay a little more in taxes, but I think the tax deduction I get for the interest will more than offset that. Regarding the furnace, I'm thinking of paying the gas company for a service contract. I have to check into the cost, but it might be good insurance incase the water heaters of the furnace dies.

Since you'll be renting half, won't you be able to deduct the repairs from the rental income, and depreciate the new appliances/materials?

This sounds like a really well thought out plan swimpy.

I don't know about that. I will find that out, though. Thanks.

Not sure if I do either. A lot depends on the tenant, too.

what if you or your husband loses your job or has to take a pay cut.

are you still able to afford the repayments. I was advised that repayments should not exceed 30% of current income.

What if interest rates rise markedly in the next 10 years?

I'm playing devils advocate here swimpy.

It all sounds like a plan to me. I'd also advise using a rental agent to manage the property rather than try to collect the rent yourself and having the tenent always on your back about this repair or that appliance. dont tell the tennent you own the property

This is the exact attitude self-made millionaires do NOT have.

Screw the property manager. That should be reserved for landlords who simply have too many apartments to manage. You're working in the town, so it's not like you're an absentee landlord anyway.

Swimpy, if just renting one out of the two units turns a profit, sounds like you're in good shape.

I think the main consideration would be how cheap you can buy the property. We're in a down market, so you want to buy as low as possible. Don't be afraid to lowball: offer 60% of today's market value and go from there.

Also look up how to figure out the capitilization rate, what this particular house calculates as vs. the average cap rate for that area's market.

Dadpad, This is totally my investment. Hubby and I have our finances totally separated. Yes, I can afford the payment even if we lose the tenant. If I lose my job, I'd have to sell the duplex.

Slappy, Thanks for the vote of confidence. They've already reduced the price by approximatley 7%, I plan to start with an offer that is 20% lower than the new price. We'll see if they bite.

If you lost your job, renting both units would generate even more cash flow. Ideally you want to be closer than 50 miles, but if you find solid tenants, it can be pretty low maintenance. Never know, maybe you'll like the landlord thing.

Also check the local renter's market, to make sure you're not shortchanging yourself on the rental income.

True enough regarding losing my job. The rent generated from both units would easily cover the mortgage, and then some I would hesitate to raise the rent on the folks that are living there now for fear they may move, but I take your point that I should get a better idea of what rents are in the area. They are paying a pretty low amount based on what rents are in my home town. The real estate agent said that there is a shortage of rental units in the small town where the duplex is located.

Resale value.
What if you decide to sell. Is the unit in a sort after location.
Best house in the worst street or worst house in the best street.

Position position position.

Close to work, shops, schools, other services.

Neighbours?

How skilled are you in tenant/landord rights. If a tenant stops paying how long will it take you to get our money. If you can't get your money how will you get them out of the unit.

It's a good neighborhood, mostly single family homes. The house is an old Victorian with lots of character. It's close to the retail district. It's a very small town, so everything is close tot the retail district. The post office is a couple of blocks away. The courthouse is across the street. There is a grocery store about 2 or 3 blocks away. Resale shouldn't be a problem. My plan is to sell it when I retire in about 10 years.



I have no experience in tenant/landloard issues. I have a lot to learn.

I too live in a small town (2000 people). Rental agents generally know who is a good tenant and who isn't. It may be useful to engage a rental agent for (say) the first 6/12 months. Can't hurt to talk anyway find out how much they charge.

In Oz many real estate agents act as rental agents, collecting rent and running interference between the tenant and client for a small percentage of the rent.

It all sounds pretty fine to me swimpy.

Swimpy, go for it! Real Estate is a very nice investment. Been there, done that and I did well with it.

I wish you the very best and I'm excited for ya :-D

Positive gearing huh?

Just do it, after due diligence.

Thanks, Montana. I'm nervous, but I feel like it's the right decision.

solipsister, ?

OK...taxes. I suppose I should ask a tax professional, but can anyone here give me an idea of the income tax ramifications? Chai mentioned this. Will the rent be considered income or can it be offset by the expenses and depreciation?

I think I found the answer. http://www.irs.gov/taxtopics/tc414.html

I'm glad Slappy stopped in. I was hoping he would. He's got more experience than a lot of us do in this area.

Looked at your irs link swimpy...just scanned it actually. It seems the same as when I rented my house out for 2 or 3 years, while living in another state.

In my case, I was trying to have the house as income, it was in bad shape at the time and I wouldn't have been able to charge enough rent without putting a ton of money into it.

I rented it to an aquanintence of mine for really cheap. She was happy to live in a less than perfect place for the way below average rent. I'd bought that house as a foreclosure so the mortgage was really cheap, and the rent almost covered it.

Where I benefited was mainly with the depreciation and a little for the expense write offs. At the end of each year I showed a loss, so I did end up making money because of the taxes.

If you living in half the duplex, I assume you could depreciate the other half.

You say this tenant has been in there a long time? That's good. If they have no plans to move, should be smooth sailing. The only problem I had with being so far away was that my tenant would call me saying she needed an electrician come in, and all it would be was a loose light fixure that needed to be tightened....stuff like that.

Since you and your husband will be right there during the week, minor repairs can be taken care of by you.

_________

Ramble alert...writing on this thread reminded me....The only other experience I've had being a landlord was when my ex-husband and a friend "Carol" had bought 5 acres in the middle of nowhere, and put a trailer on it. They would go there a few times a year just to fish or whatever.

At one point, the ex and I lived in the trailer for about a year (long story, bad ex husband) when we left, Carol wasn't really interested in visiting there much anymore, and neither did we, so I suggested renting the place out.

People there didn't have a lot of money, and Carol (who had been hesitant about renting, since she didn't need the money), suddently decided we should price the place as if it was were she lived (Fort Lauderdale).
We really did need the money though (bad ex husband), and I had to really convince her we'd be lucky to get enough to monthly pay the note of the land...which was really a pittance, but was putting us over the edge.

Anyway, we got this married couple with 2 kids to rent it. I thought I died and went to heaven because they happened to be the stereotype of the "poor yet decent and honorable couple raising their kids right and would cut off their hand before doing something dishonest"

These people really had little, but were proud....Sometimes when the first of the month fell on a Tuesday, and payday was Friday, they'd send out the monday as soon as Daddy got his check, and we'd have the money Monday...like an entire week late

Again, Carol, who made a great living, and had been toally willing to pay a note on a unoccupied piece of land, started harrassing me monthly before the rent was even due to "call them and make sure they're going to pay." or God forbid it was the 2nd to me to call them and "find out why they haven't paid." I did this a couple of times, and it would embarrass Daddy so, because he would explain the money would be there in just a couple of days...and it alway would be. Soon, I told Carol I wasn't going to call them, they would pay us as soon as they could, and what was the difference? I was tired of questioning this man's integrity.

Well, now Carol took on the job of calling them every freaking day from the 1st until whatever day we'd get the money....like the 4th or 5th....acting like they were taking food out of her mouth.

Well, I guess they got tired of being embarrassed when they were doing their best, and moved out.

The ex and I lived closer, and Carol insisted we go there immediately to find out what the place looked like...damage and so forth. Yeah, like they were really going to be able to do a lot of damage to 5 acres of Palmetto Grass covered scrub and a trailer.

I went there, and was so saddened. In the few months they had lived there, even though they had lived with people monthly doubting their integrity, they had been busy.

Daddy and his son had cleared about 2 acres around the trailer, and Momma had planted petunias and hung little suncatchers all over. Inside, she sewn new curtains for the kitchen area, and had scrubed every inch of the place sparkling clean. They'd patched a hole in the bathroom, and the kids room was left with a bulletin board covered with stickers and quotes from the bible and other people like Abraham Lincoln, Thomas Edison and so forth.

What a bunch of deadbeats, huh?


I don't know if I have a point here beyond that even though it's a business move you're making swimpy, make sure you still show you're a human being.