Is owning a rental property a good investment?

[Anonymous]

We are thinking of buying a small single family house to rent out. The idea is to rent it out for many years and use the rent to pay most of the mortgage costs. We could buy for about $250k in a nice area, put $50k down, and rent it out for about $1200 plus utilities. We have a neighborhood picked out that is close to the freeway and has a lot of cute small one story houses. Its also near where we currently live. It's a very residential area with low crime. Hopefully at some point the rental could be paid off and we could give it to our disabled son so he always has a place to live or we could always sell it too. Does this sound like a crazy idea? We are not in DMV, but in New England so prices here are cheaper. Would you do something like this?

[Anonymous]

Did it. 4 times. We're mid-50s and currently bringing in about $7,000 a month in profit.

Best investment ever.

[Anonymous]

If $1200 per month will cover your mortgage--sure. But it shouldn't cover "most of your mortgage." It should cover all of it, plus your taxes, with a little buffer for vacancies in order for it to be income generating. If it's an area where you expect rents to rise you could maybe be a little under that for a while, but in most part of New England (perhaps excepting Boston) that isn't a sure thing right now.

If the primary purpose is just to be sure you'll have a home that you can eventually give to your son, that might be somewhat different math, though.

[Anonymous]

I personally would only consider it through a rental company and I have no idea what kind of cut they take. I'm not handy and don't really want to deal with maintenance or pain in the ass renters. But some people don't mind that sort of thing.

[Anonymous]

Typical property manager charges 8% and 75%-100% of first month's rent to find/vet a new tenant. Well worth it.

[Anonymous]

You should more than cover the mortgage for it to be a "good investment."

[Anonymous]

Where are you thinking of doing this? I agree you need to more than cover the mortgage. Otherwise you are banking strictly on appreciation for wealth creation.

[Anonymous]

I have a rental property in New England and the rent covers mortgage, taxes and insurance. Tenant pays all utilities, does all yard care/ snow removal and small repairs.
I keep the house because I might retire there one day. In the meantime, it's no money out for me (and I get tax deductions).

[Anonymous]

I have three rental properties. The rents cover (barely) the expenses. I am 42. When I am 62 I will retire as a fed. The notes will also be paid off that year. At today's rents they would net me $4500/ month. I’m looking forward to using that money to make retirement awesome, and then supplement my child’s income later in his life.

[Anonymous]

Money in stocks returns an income stream too.

[Anonymous]

Anonymous wrote:If $1200 per month will cover your mortgage--sure. But it shouldn't cover "most of your mortgage." It should cover all of it, plus your taxes, with a little buffer for vacancies in order for it to be income generating. If it's an area where you expect rents to rise you could maybe be a little under that for a while, but in most part of New England (perhaps excepting Boston) that isn't a sure thing right now.

If the primary purpose is just to be sure you'll have a home that you can eventually give to your son, that might be somewhat different math, though.

Would you buy property in NoVA that did not cover monthly mortgage (covers only interest and taxes but not principal) if the objective was to buy a place that your kid can use in about 10 years or so? If this place turns into a Bay area what with all the Tech companies moving away, would that not be a good investment (assuming of course I can cover the principal as well as any deficit arising out of the occasional vacancy)?

[Anonymous]

Anonymous wrote:

Anonymous wrote:If $1200 per month will cover your mortgage--sure. But it shouldn't cover "most of your mortgage." It should cover all of it, plus your taxes, with a little buffer for vacancies in order for it to be income generating. If it's an area where you expect rents to rise you could maybe be a little under that for a while, but in most part of New England (perhaps excepting Boston) that isn't a sure thing right now.

If the primary purpose is just to be sure you'll have a home that you can eventually give to your son, that might be somewhat different math, though.

Would you buy property in NoVA that did not cover monthly mortgage (covers only interest and taxes but not principal) if the objective was to buy a place that your kid can use in about 10 years or so? If this place turns into a Bay area what with all the Tech companies moving away, would that not be a good investment (assuming of course I can cover the principal as well as any deficit arising out of the occasional vacancy)?

No, definitely not. Not because it's not a good investment (although it isn't!) but because if home prices are that out of sync with rents, it is a huge red flag of an oncoming housing bust, at least in that region. You'd be far better off waiting for the rents and home costs to level out if you don't need the property immediately.

The only exception would be if the rent would cover the principal for a 30-year-loan but you choose to do a 10-year-loan to pay it off faster. Then I'd be okay with the home being cash flow negative in exchange for being paid off by the time you need it, because you'd always have the option of refinancing into a longer loan if needed.

[Anonymous]

What would the rent not cover?

[Anonymous]

Anonymous wrote:Did it. 4 times. We're mid-50s and currently bringing in about $7,000 a month in profit.

Best investment ever.

Can you tell us more? How do you handle repairs? How far away are the properties from your home? How Much did you put down? How much of your time does it take to be a landlord?

[Anonymous]

Why buy now? Even though wherever you are in New England may be cheaper, hasn't real estate been riding high everywhere for the last 7-10 years? Real estate cycles are historically about 10 years and we are likely not too far from a downturn -- why not wait? I find myself researching markets etc. (bc I'm looking to buy in a secondary market and outsource the whole thing with property management etc.) and I KNOW there will be better deals whether it's 6 months or 18 mos from now.