Apartment and Rental Properties - Questions on rental properties

I am 24 years old and have always wanted to start purchasing rental properties. I figure at my age it is probably a good time start. I found a property that would yield about a 4.5% return a year after I make my mortgage payment, taxes and insurance on the place... I have just enough cash on hand for a 10% down payment and closing costs. The only thing the house is about 80 years old and would need some remodeling. It is currently rented out now (both upstairs and downstairs).

I also just purchased my own house about 10 months ago and got a great deal on it. I got the place at about 35% below market value.

My question is would it be a good idea to take out an additional loan and purchase the property? I make enough money where I could cover the mortgage payment if for some reason I couldn't get the property rented but I would have to really scrape by. I would also have to sell some investments (stocks) that I am currently invested in to free up the cash for the down payment and closing costs. There is also a small college and vocational school located about 10 blocks from the rental property.

Is this a good idea to do this at my age and debt level or should I wait till I have more cash on hand?

First, you're going to encounter more expense with rental property than with your own home because the occupants will not treat it as well as you would. That said, the cash reserve you have seems sufficient.

The biggest problem I see with rental property as an investment is that it is very labor intensive. You can hire someone to do some or all of the work for you, but the biggest profit margin is seen when you do most yourself.

Also, the more units are on a lot, the easier it is to break even. Thus, a four unit townhome is easier than a duplex, which is easier than a single family home. Where I am, it's tough to break even on a duplex and nearly impossible on a single residence. To that end, I can't endorse the house you've mentioned, but factors beyond my knowledge might make it a reasonable choice.

This was only the tip of the iceberg, post back if you have more questions.

While I agree with JMC - I must throw this part of the equation out there. IMO - Rental property, especially in the early years of ownership - is not about making income on the property. It is more about the property being paid for by the tenants while it increases in value.

I wish I had started buying rentals when I was 24. Sounds like you've got a good head on your shoulders ----- but be careful not to overextend yourself (be able to pay the payments without incoming rent for an extended period, just in case) - or your head will start spinning.

Follow the 1% rule... ex if you are buying a prop for 100,000 look to achieve at least $1,000 per month gross income. So if you did pay 100k for a prop but the local rents only support rent payment of $800 per month don't buy it.

I was also wondering... if I were to purchase this property would the previous landlord have to give me the security deposits of the existing renters? Would I also be allowed to get a copy the current lease agreement?

I have been pondering the idea of this for the last week now and i think I am going to go to talk to the Realtor this week and see if I can take a peak at the place. I figure start out with something small like this to... "get my feet wet" so to speak. I just don't want to get in over my head. One of the things I am worried about is getting a bad tennant. One who never pays rent... that sort of thing. But I figure ... if I have a good lease agreement with stiff penalties for late rate... things should be alright.

Leases and securtiy deposits normally accompany the sale of the property. As for thinking things will be alright because you have a good lease agreement and stiff late penalties, you're in for a big surprise. My boss and I are constantly debating the merits of applications and have found little ability to predict who will be a good tenant and who will cause us trouble. You have shown wisdom with the idea of going slowly so as to not get in over your head. It's not a bad idea to hook up with a property management company for a while so you can learn about the industry from someone already in it.

Trust me,, you need to drive by the rental prop at night and esp weekends before you decide anything you may be surprised at what you might see... also go to the local polic or sheriff office and simply ask them if they have had to respond to any problems at the rental prop or the area.

It does depend on your area but buying rental property is what I do and theres no reason to put money down at all on rentals. The 10% down is not going to make a big difference in the payment. let me know if your interested in learning how to buy any realestate with no money down,

Removed e-mail address.

sounds like a recipe for disaster to me way over your head man, you are broke, what are you thinking? one illness that puts you out of work along with non paying tenants and all the other things murphy brings with him when you overstretch, will move into your spare bedroom DONT DO IT. Save your money and pay cash for your 1st rental property get rich slow man lots less stress and bankruptcies.

Don't do it unless you want to hear EVERY SINGLE DAMN excuse as to why they can't pay the rent. You'll find out who is sleeping with who this week, blah blah blah blah blah excuses. I'm selling all of my properties to get out of it.

You can do it if you find the RIGHT property in the RIGHT location with the potential for the RIGHT tenants, it's better to pay alot more for a house in a much better part of town where the rents are higher than a cheaper area, if you love to learn how to fix things yourself, know reputable contractors/service people(even then that doesn't guarantee they will show up even after agreeing to do the job), have a LARGE cash reserve so that when things start to go wrong and they always go wrong in groups( multiple tenants move out at the same time, large repair bills). If you're really wanting to make money buy a run down property, rehab it and sell it. You don't have to worry about the tenants.

I joke with my wife that by the time I get rid of my rentals I'll have a PhD in psychology

Hi, One thing you got going for you is your 24 that gives you time to right the ship if something goes wrong.I bought my first rental when I was in my early thirties. A fourplex that wasn't a fixer upper. It is in a college town and I rent to students. I then bought another four plex and a duplex in the same area. I managed and did all the maintaince my self. Took a couple of tenants to court, some took me to court but this was very minor. I still own those properties and a couple of more. I bought the first one in 1979 and in all those years I never had to go into my personal funds to cover any expenses.
I am now retired and the income those units sure makes retirement a blast.
I say go for it, real estate has a lot going for it.
Goodluck Woodbutcher

80 year old house??? lots of up keep!! MY2$