Rental property purchase

[Carlos Leyva]

Hey BP! I wanted to ask the community something and get their opinion on it. So I’ve finally made the choice that I will not be attending college and rather just work and save up for my first rental property. My question today is should I consider the amount of money I make on my current job to match or be more than the mortgage payment? This is just an example but let’s say someone makes $300 a paycheck and the mortgage is $500 should I take risk on the rental property and trust it to help me pay the mortgage assuming it cash flows. Or should I play it safe and wait until my current job can pay for the mortgage even if the property is not being rented out. I’ve heard of leverage and good debt and bad debt but I would like to hear on what you all have done and what your experience was buying your first rental property. Thank you all in advance!

[John Warren]

@Alex Howard what you are describing is the underwriting process that all of us have to do as investors. Burst pipes, vacant units and leaky roofs can be accounted for mathematically, and this business is old enough that we do not have to re-create the wheel! I use the following to analyze properties in my area, and I am using these metrics right now on my 19 unit in Berwyn that I am in the process of purchasing. 

Maintenance-5% of the gross rents. 

CapEx (reserves)- 5% of the gross rents

Vacancy rate- 5%