anyone own rental property?

[basil]

We're moving at the end of June to a new state.

We've sold our house, but having trouble finding a place to buy in the new location. Both because I'm extremely picky and because inventory is low and we aren't there.

So we're looking at rentals...But then I started thinking that we could buy a small 2 or 3 bedroom condo/townhouse/half duplex in cash and live there for a year or so while we find or build our dream home. We could then rent out the condo and have positive cash flow every month.

Is this a good idea? Anyone do anything like this? Pros and cons?

[gatorsmom]

We're moving at the end of June to a new state.

We've sold our house, but having trouble finding a place to buy in the new location. Both because I'm extremely picky and because inventory is low and we aren't there.

So we're looking at rentals...But then I started thinking that we could buy a small 2 or 3 bedroom condo/townhouse/half duplex in cash and live there for a year or so while we find or build our dream home. We could then rent out the condo and have positive cash flow every month.

Is this a good idea? Anyone do anything like this? Pros and cons?

It depends. How busy are you? Are either you or your DH handy? Can you or he fix basic plumbing/electrical/carpentry issues? Do either of you have time to do that stuff? Rentals that need work, are going to require that you have the time and money to do that. Also, the market and location make all the difference, as far as the positive cash flow. Is there a lack of affordable, desirable rentals out there? What are the rents going for? I'm assuming you'll get some sort of a mortgage for this place. Will the rents be enough to pay off the mortgage, insurance and repairs? For example, at one point in history, rents were really high to live in the Galleria area in Houston. Very desirable neighborhood so the rents were high for even the most basic condo/apartment. However, at the same time, property there was cheap. So for a cute, renovated one bedroom condo in that neighborhood we could easily charge $800 per month while our mortgage payment at the time was around $400. With everything else figured in (months it stood empty for repairs, repair costs, insurance, association fees, etc.) we were getting $100+ per month profit those first years it was rented out to the same tenant. Those are the things to figure in.

You will also need to get a lease reviewed by a lawyer (preferably one who deals with real estate or owns real estate in your state). And you will have to do some work background, credit, and criminally checking (as well as references- very important) the potential tenants to make sure you don't rent to someone who will set up a meth lab, or let their dogs tear the place up, or let their kids break out the screens to shoot bb guns out the windows (all very possible- ask me how I know). Proper reference and background checks will ensure that you have a quiet tenant who doesn't expect you to come over at 1am to repair the toilet they broke by allow the children to flush socks and chicken bones down.

However, if you've found a place, done your homework on how much you will be paying for the mortgage, a realistic amount you can charge rent and you are ready to put in time to find the right tenant and make some occasional or frequent repairs, then this could work.

[basil]

No mortgage, we would pay cash. But then we'd have a larger mortgage when we finally bought our primary home, but we would still be able to put 20% down.

The rental market seems sort of tight for a nice 3 bd townhome...which can be had for about $180k or so, and seem to rent for $1000-1500.

But we're not particularly handy, or have huge amounts of time. I don't know if we would be able to get a property management service and still make the profit worthwhile.

[echoesofspring]

When we moved last year we held onto our old house as rental. The house is about 10 years old, pretty good condition in a super super tight rental market. It's only been a year but I feel like we've been really been very lucky with our tenants, only minor maintenance issues, etc. We used a prop manager to find a tenant, run the credit check, do the showings, etc. It was a flat fee and they guaranteed the tenant for a year. So far it's been easy, but meanwhile FIL who has two nearby rental properties (new houses same size as ours) has had several issues with tenants. At least 2 tenants with undeclared pets that destroyed the carpet & yard, a couple broken leases, etc. And his properties are nicer/higher rent than ours. I guess what I'm saying is that it feels a bit of a gamble. It can go really well or be a headache. We plan on holding our property for a long time, I'm not sure it's something I would mess with without a long term plan.