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…