One of the best decisions I've ever made financially (at least so far...) has been to invest in a couple of rental properties. I figured, I'm in the business and should really take my own advice about diversifying my retirement income stream.
I started not quite 5 years ago with my first property and am just about to close on my third one next week. So... I know quite a bit about the process now from BOTH sides of the desk.
The math still works, even with the increase in rates from last year. If you buy a good rental home, it should pay you back (In either cash or in equity, or a combination) in the range of 14% in the very first year. (Ask me to show you the math... it's for real.)
In a nutshell, here's how I've done it:
- I stick with single family homes that are within 5 minutes of where I live. I drive by them regularly to check on them. They may not have as high a return as a duplex or triplex, but I'm OK with that.
- I put a down payment of 25% of the purchase price to get the best pricing on the mortgages. Over the years, I've saved a little bit of a nest egg that I draw on for this purpose. I could have done 20% down, but 25% gets much better pricing.
- I get 15 year mortgages at the absolute lowest rate possible without paying points, and I plan on the home to basically 'break even' on the monthly payment. I use other funds for repairs & maintenance if needed.
- I do NOT try to maintain the homes myself. I have a great handyman and plumber that I have on speed dial.
- I rent the places myself using Craigslist, which is where everyone in Albuquerque shops for rentals. I pull credit on every applicant and make sure they have either a good job, or lots of cash in the bank.
That's pretty much it. The rest of it you learn as you go along. I have some great realtors to help you in this process and make sure that the home you choose will hold its value over time.
If you'd like to chat more about buying your first rental (or even your 3rd!) give me a buzz. I'd be happy to share my experiences.