First Time Buyer For Rental Property Out Of State
Sick of the prices in The Bay Area. I am beginning the researching of buying a house in Indianapolis in the 40K range. Yes, it's in the ghetto but i am prepared to put 50% down and do a short term mortgage on the remaining. My family would manage the property. If the rent is 500 a month i would stand to make about 200 dollars after taxes and insurance, so it would be positive cash flow though not much. Like many Americans i have this overwhelming urge to own (even though i will not reside there.) What are some of the drawbacks to this plan? Of course I know i could get stuck with huge maintenance costs and problem tenants. I only bring in about 35K a year and feel like i have been running in place for too many years. I'm looking for my piece of the pie- do you think this could be a good start?
One good thing is that when you go home for a visit you can write it off on your taxes at least one time a year
As for return on property etc 12% is o.k. There are other options out there however such as note buying where you might get a better return.
I have run into some really good seconds lately that are heavily discounted and I wouldn't mind owning the property if the owner defaulted..
I have an affiliate membership with we buy houses and I am thinking one of the things I may want to advertise is short term loans at say 15% to cure an NOD. IF there is equity in the property to support it. I then either collect 15% on my money or I foreclose on a property
[addsig]
YOu guessed the major problems: maintenance (esp in rough neighborhood) and problem tenants/loss of revenue from non-payment & legal fees. While it is nice of your family to offer to manage the property for you (for free?), I am wondering if they have any experience. If they have no experience and it is in a bad area of town as you indicate, you may actually save money by paying a professional,licensed property manager.
That is why i was looking at trying to buy a house that has existing tenants. Tenants that have been there a few years and are reliable.
Will a co. even touch a rental fro 50$ a month?
Hey,
I understand you are going to invest $20k (50% of 40K) to make $2.4k per year. That is 12% return per year and that is not very good. It is very bad if you are investing in "da hood". I have lots and lots of properties returning 70% per year, before repairs, vacancy, etc.
long range and in the ghetto.......no thanks, to many other good props. out there....km
Hey guys, thanks so much for this advice. I am reading very carefully. I like the idea of a 1000% return. I was initially seduced by the idea of a nice house for 40K because the same house can go for a million in the Bay Area. But i know i have to be more pragmatic in my approach. If i cannot get a loan for 20K i may have other outlets to borrow from.
Stockpro99,
That seems like a great idea!
You could call it the "arrearage bridge loan" or the "financial distress loan".
One of the technicalities would be making sure you stay aware of the status of any underlying mortgages. What ideas did you have on that?
Also, I can imagine you would need a small mountain of signed and certified CYA letters...
JohnCl
abbyewing,
Think "cash on cash return". That is what it is truly about.
JohnCl