Rental Property Series:Buying Our First Rental Property

owning rental property
Ain’t she a beaut?

After years of getting in position to buy a rental property, we finally did it! We’ve been close a few times but just couldn’t pull the trigger. We always wondered could we make the payment, would it cash flow, would our tenants assemble a meth lab in the bathroom?. You can do as much research as you want, but eventually, you take the plunge or you don’t. Right now seems like the perfect time for a number of reasons.

We have more than enough for the down payment. On any property purchase, you are less likely to become underwater if you have a sizeable down payment. If you are buying an investment property, it is required that you have 20-25% down. We’ve been saving like mad for the last two years. Buying this property means so much more than having the stuff we previously piddled our money away on.

Rates are probably never going to be much lower. You never really know on this one, but we have locked in a rate of 4.25% for a 30 year fixed term. We have every intention of paying this loan off way before 30 years. Because we are new to buying investment property, we decided on the longer term. If we do have a problem finder a renter, this payment won’t break the bank.

I am switching to part time work soon. At the beginning of the year, I will no longer own my current business and am essentially a contract employee. I believe I will be able to earn around the same amount of money as I do now, but it would probably take two years of new employment before the bank would give us a loan. It is possible to qualify sooner like Crystal and Mr. BFS , but to be safe, I’ll assume two years.

We found a house that fits our criteria. I think the most important thing when buying a rental is to write down what you are looking for before you start looking. You can’t search like you might for your primary residence.  It’s all a business decision. Our rules for this purchase included:

Purchase price and cash flow:  Our maximum price was $80,000 including repairs. (I know, it is insanely cheap to buy real estate here.). We got this house for $63, 000. It will need about $3000-$5000 in repairs.  With the 25% we are putting down, our payment will be just under $300 a month, inclulding insurance and taxes. It should rent for $700 minimum, $800 if we really go HGTV on the kitchen.

Location, location, location: We wanted property on the North side of town. The neighborhoods are nicer, and the chances of getting a meth cook are much lower.

Floor Plan: This is a small house, 950 square feet, but it has an open living room/kitchen area and the bedrooms are an OK size. It also has a good sized fenced yard.

Lack of major repairs: We did not want a house that had foundation problems or needed major repairs on the roof or electrical system. Our inspector did not find any major train wrecks. We do need to do some major cleaning ( I think the prior owner cooked bacon and fried chicken every day.) and painting. The kitchen needs a new stove, vent, and counter tops. The refrigerator and dishwasher work fine.  The bathroom has a lovely mint green tub that we will keep for now, but we’ll have to replace the flooring, vanity and toilet.  The owner added laminate floors throughout most of the house, and left us a working washer and dryer, which will be a bonus to the tenant. If they break, we won’t replace them. The house has a huge gas stove, which works well, plus some electrical baseboard heaters, which have to be replaced. The yard is brown, but a little water should fix that right up. Overall, lots of elbow grease, but not much skilled labor required.

Our other dilemma was to determine if we would manage rental duties ourselves or use a property manager. Since we have no time and haven’t done this before, we have chosen to go with the manager. I really don’t want calls at two A.M. to change a light bulb. We live in a small town and renters could be patients of mine, or my husband might have someone’s kid in his classroom (really awkward if we have to evict them). We plan to be pretty anonymous. With the projected cash flow, paying $70-$80 a month to let someone else deal with the headaches makes more sense for us right now. When I am working part time, it might be a different story. Although I’ll have to do some reading on sites like Prairie Eco- Thrifter to become a better repair lady!

This is a really exciting time for our family. This rental property is our first step in diversifying our income streams so we can work less and do more of the things we love. I intend to keep my office building as a commercial rental when I sell the business, so this makes two income properties. Our goal is to have five properties within the next ten years. Of course, this one  could go way South, and we might decide being landlords isn’t for us. We’ve done as much homework and planning as we can, so we’ll see. We want to get everything done and have a renter by October 1. I’ll keep you updated.

What is your experience with rental properties? Should we go with the property management company? Are we going to end up with a meth cook anyway?

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Written By
Sydney White is a Texas-born stay at home mom who enjoys spending time with her family, bargain hunting and, of course, writing. She is currently the editor-in-chief of Snipon.com.

50 Comments

  1. Wow, congrats on your purchase. I hope the tenant issue works out really well for you. I regret to say that I can’t give much advice in this field. Keep us posted on how this property does by you you never know when someone (aka lazy me) might get inspired to do the same! – and learn from your experience.

  2. Congrats! That is such a great deal and I’m very excited for you guys. It’s actually something we would like to do some day in the future.

    We just bought our first house (or are about to, closing in a month) and it has a studio apartment setup. So while this isn’t entirely a rental property since we will live there too, we will get some experience. I don’t think you should worry too much about bad tenants, just make sure you get rid of as much liability as possible through the lease (again, I haven’t been a landlord yet so take my advice with a grain of salt).

    Congrats again!

    1. We’ll certainly learn lots for sure. I’m anxious to hear how your rental set up goes as well. At least, you’ll be able to keep an eye on your tenants. That could be good or bad I guess.

  3. She’s a beauty! Some people would like at that and see a Detroit special, but you see opportunity! That’ pretty awesome that you’re on the path to bringing in additional income. I’ve given the same thing some thought, and figured I would go with a management company until I got the hang of things myself. Good luck and happy tenant picking!

  4. Wow, congrats!!! You got an excellent deal!!!

    We are moving at the end of September or beginning of October and renting out our current home starting October 15th. We already have our tenant lined up and she already put down her deposit just to ensure we don’t look for anyone else, lol. It is Jacqui, our biweekly housekeeper, hahaha. She fell in love with our house and called dibs as soon as she knew we were moving. She already likes to tell me about all the things she will make prettier, like our yard. 😉

    So we are going to be new landlords soon too (well, we have been renting out a spare bedroom in our own home for 3 years off and on, but that’s not the same). Good luck to both of us!

  5. Congrats on taking the plunge into the property rental biz Kim! With property prices so low there it sounds like a great opportunity. That is surprising how much you can rent it out for if the property itself is so cheap to buy. Again another reminder that I need to move out of this city to somewhere more affordable. A property for under $80k sounds impossible to me. Here I’d be lucky to get a decent 1 bedroom apartment for $300k.

    1. One benefit of living in a low socio-economic area is that there are always renters, and many of them can’t get a mortgage due to poor credit or unstable job history. That’s too bad it’s so expensive in your area. Although, when we eventually sell it, it won’t be worth a mint.

  6. That’s quite an endeavor! Sounds like you’ve done all the preparation and legwork to get ready, though, so I’m sure you’ll overcome all those little bumps you meet along the way. Congrats!

  7. Congrats and good luck. Sounds like this is your best opportunity to achieve your dream.

    I understand your desire to stay anonymous from your tenants, but I would probably be more hands-on myself.

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