Getting started as a landlord

Rehabbing, Fix and Flip, Rental Properties
1

I have always been keenly interested in investing in properties to rent. I know quite a few people whose fathers own real estate and are fairly well off. I have a few questions, and will outlay what my plan would be.

I live in an area that was ranked in the top 5 in cash flow markets in the country. Houses are very cheap to buy here and you can get a decent amount for rent. It is not unheard of to get a house that needs only minor repairs such as painting, etc or even is in decent working condition for under $20,000.

I would not take out a mortgage on the house, I was planning to just borrow the money to outright, buy it and pay back the loan. I would only be looking for duplexes or doubles, since I would be able to maximize my rental income(could get $800-1000+ monthly) versus maybe $650-700 on a single family house. This would also give me 100% equity in the house in case I need to use a home equity line of credit for any purpose including potentially funding more purchases, which would likely even be at a lower rate than the other loans, dropping my payments by $50-100/mo.

Loan payment would be for 5 years, roughly $440/mo. Taxes and insurance would add an additional $100/mo roughly. Looking at rents of $800-1000 combining both upper and lower tenants, so on the low end, the property would net $260/mo and the high end $460/mo+.

Planning on putting 50%(at least for the first year or two) of net income from properties into a fund for any work/repairs that need to be done,vacancies, non-payment of rents, or eviction costs, so that way I would have a nice cushion built up over time. Net yearly income would be $3880-$5880+, and after 5 years the house would be paid in full, and all rents would be profit, minus repairs, vacancies, eviction costs, etc.

Plan is to rinse and repeat, building up 15-20 properties, which would be fully owned after a period of about 10 years or less, and would bring in roughly 150-200K/year in income.

Is this something that is feasible? Would you advise starting out this way? Are there any unforseen costs/problems that may arise that I am not considering? Obviously I am going to be doing my due dilligence regarding condition of the houses,etc…

Any advice would be appreciated and any pitfalls or devil’s advocates would be welcomed…

Matt

2

"I would not take out a mortgage on the house, I was planning to just borrow the money to outright, buy it and pay back the loan. "

What will you use to secure this loan? The lender’s going to want something to make sure that you’ll pay it back…

Keith

3

Yes it is feasible and a very good plan if you make it work that way and stick to it and not get distracted. If you have a private money lender they will ask for collateral that usually means the house that you are purchasing,but that is ok with the short term of the loan. Or you could establish a large business line of credit :rolleyes . There are always unforeseen problems that is why we set up our own rules for investing so that when one of these come up we can handle it and move on. Yjis means low offers and conservative estimates for repairs and expenses. The numbers must be heavily on our side.
My best advice is do one deal as you have described and then reevaluate after a few months of ownership. I believe that you will find that duplexes are hard to rent, especially the upstairs,as opposed to a SFH.
I think that you will find that you will get a better class of renter in a SFH than the duplex and maintenance will be higher. If you have the management set up for this you will be alright.
Redhawk