What should we do? Opportunity for 1st rental invesment.

Question

Hi!My fiancee and I are new to real estate investing but want to get started. For broad picture to weigh decision... We're 30, make a combined $241K/year, have a combined net worth of about 400K (222K in retirement funds; 180K in cash and stocks) and our only debt is my car which has about 19k left with a very low interest rate. We're considering a property that costs $220,000; were quoted 8.5% rate; could generate 1900 in rent, and is virtually turn-key ready to go, no work/repair needed except getting a washer/dryer.We don't own a primary residence yet but are considering purchasing one in the next 3 years.It seems our monthly cost to operate the rental with everything included would be just below the rent we can get... so cash flow is not great to start.Our question is if it is still worth it.... knowing over time rents can gradually increase, we can hopefully refinance down the line, depreciation, leverage vs. what the down payment could do in the market, etc... Or if we would be better off buying a primary residence first.We have family right near the property that has a very similar rental and has had no problems filling it... they would also act as a free property manager for our unit.Any help/advice is appreciated!

Saad Munir · Answer

Congrats Sam! Why not consider buying a multifamily, living in one unit, renting out the others all while getting the lower rate? I did not do that when I bought my first property 10 years ago but certainly wish I did! :)

Charles J Sabo · Answer

I feel the numbers could be accurate and I agree there will not be much of a monthly cash flow. The goal of buy and hold though is just that. Don't think immediate, think 5 year, 10 year, 20 year. Will that property be cash flowing then? Absolutely! Will you have equity? Absolutely. Look for opportunities to reduce expense to get more cash flow out the fence.

I am from the Lehigh Valley and would love to discuss further if you want. Feel free to connect with me.

Jake Andronico · Answer

@Sam Ganden

Man, you guys are in a fantastic spot. Congratulations on being where you are so young!!

It's always great to have someone close to you that has a direct comp of what you are trying to do.

RE investing is not for everyone, and cash flow is one of the benefits that gets glorified, but there are many many more over time.

This situation seems like you kind of can't go wrong either way. You both make great money and clearly don't have trouble with saving and staying out of debt.

This sounds like a decision that is not purely financial, which is totally OK. Every decision does not need to come from a 100% financial lens IMO, especially if you're already on such a phenomenal financial track.

Buying for cash flow right now is very difficult. Buyers in our market are looking at assumable FHA and VA loans which is an interesting angle, especially if you have a larger down payment.

Do what makes the most sense for you, and try to find people who invest in your area that are where you want to be. Asking those people questions will be invaluable.

Michael Smythe · Answer

You should start with something you are comfortable with.

Many here will share their views and experiences, but you should just learn from them. Don't try ot follow someone else's journey, blaze your own trail.

Ethan Cramer · Answer

You may be able to get more benefits by purchasing a home for you and your fiancee to live in. and eventually you would transition that property into an investment property. benefits of doing this are you would get a lower rate, put less money down, have more tax benefits, and forced monthly savings (paying principal).

Bryce Jamison · Answer

You're seeing something similar to what I imagine most of us are seeing right now.

Based on your situation you both seem do be doing great. I am curious how much of that 180K is cash emergency fund though? Depending how much you have I'd go ahead and pay the car off. I'd also personally buy a primary residency first. I'd rather have my equity in the place I live first, plus you'll be able to put less down.

When you do want to buy an investment property you'll need to change one of the variables in order to make it cashflow. You can get it at a lower asking price, find a lower interest rate (maybe assume their mortgage), put more down, or figure out a way to get it to produce more rent. If you can't do one of these things with this property you'll have to find another.

Is it the end of the world if you get a property that only cashflows $50 a month in year one? No, as long as you have strong faith the area will continue to grow, you'll see appreciation and rent growth, and you have a healthy emergency fund in case you need to replace the water heater in year 2.

Brayden Hrycko · Answer

Hey @Sam Ganden,

I would recommend finding another property that has better numbers, maybe even a different area or going ahead and buying a primary that is a multi unit. You can get a 1-4 unit with FHA and take advantage of not having to pay rent while others help you pay that and even give you cash flow. It is a great place to start.

Peter Dorinsky · Answer

Is the property you're considering purchasing in an area that is appreciating? Are you more concerned with cash-flow or building equity? Rents go up, but keep in mind that is also because taxes and inflation go up.

I would also strongly recommend buying a multi-family unit and house-hack for your first deal. Having the ability to live rent free or at the very least have your living expenses drastically reduced will help set you up for your next investment. You'll also have more options in terms of loans if you owner-occupy. Best of luck!

Corey Conklin · Answer

@Sam Ganden I would buy the house. It's turnkey and is in a good location that historically rents well. That's a good way to get your start into RE investing.

What should we do? Opportunity for 1st rental invesment.

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