Concerns about starting real estate investing

[Dalton Just]

Hello, been around here for quite some time now lurking in the dark but after studying the economy of my local area in relation to housing/rentals/real estate, etc.  I've grown to have a newfound interest in real estate investing, this was also greatly enhanced by reading Rental Property Investing by Brandon Turner.

With that said, I'm new to the whole idea but I believe I have the capabilities of making it successful, except, there is some shortfalls that will require a little bit of background and for the sake of saving space/time, I'll try and make it as quick as possible.

I'm 29 years old, so is my wife and I have a nearly 3 year old son.  We've been living in a nice and underpriced rental ($950/month) without a lease (landlord apparently forgot we existed and never upped it after a year, which is good) for at least 4-5 years now.  During this time we haven't ever budgeted finances properly and didn't really care, right.  We had the money to buy takeout, well we did, however, as time went on, we became conscious of our future, therefore we started a brokerage which has gained about $6000 since last march at $500/month, so that is our most successful savings account; there's a few others like retirement, etc.

Since mortgage rates were so low, we locked in a 30 year mortgage for my parents house at 2.5%.  The house appraised at 210k and we bought it for 180k (they gifted equity of the 210k).  My parents are paying the whole mortgage and utilities until June/October 2021, about when they retire and move on.  They have also purchased a lot of the remodeling costs on outdated parts of the house and plan on literally leaving everything for us when we move in (lawn mower/boat/truck, etc.)  We believe the house will be worth at least 250k in 3 years (after it gets profitable during the starter equity hurdle I'm still learning the logistics about).  With just those points, this is like the most unbelievable perfect scenario for a home and investment property (actual solid returns in 3-5 years).

Biggest problem, affording it.  We both make ~50-60k a year combined, depending on many factors like taxes/overtime, etc.  I put together an excel spreadsheet of all of our expenses including savings (like the brokerage) and most of our expenses are non-negotiable in terms of eliminating extra costs besides minor personal things.  Student loans/car insurance/car payment, things like this that are massive factors in financial losses.  With that said, the total cost of the house payment + utilities, comes out to $1200/month, versus our $950/month rent.  With rent factored in, we currently only come out to $470/month ($5700/year), which is already kind of bad.  The house payment factored in comes out to $300/month ($3600/year), that's brutally bad.  We have to be very stringent with our money, especially when any costs outside the necessary expenses, comes out of that $3600/year... which is not good.  I didn't even factor in the second vehicle + gas because the house is a small commute.  One hospital bill or vehicle repair could consume that YEARLY amount and we'd be negative.

To make a long story short, on those expenses, it's hard to imagine starting real estate right this very second, which was likely not plausible anyway since I'm still learning the practices and I don't have any actual handyman experience that would be beneficial to do myself over a contractor (but we have many connections to make this work, not overly dramatic).  

I work as an operator for the city I live in locally and it provides great benefits to health insurance/time off/pension, etc.  There is no leaving my job, but I never intended to anyway.  My wife is an office manager at the biggest financial firm here locally and she has access to many cost saving techniques and connections with the accountants/bosses and what not in the office itself that would normally cost people quite a bit of money an hour just for consultation.  We have access to things that help, but I'm still not only worried about having only $3600 to live off in an entire year, but about the future of my real estate adventures.

We have multiple ideas.  Save up in the brokerage and use that money to remodel the kitchen of the house, which will likely be around $7k-8k, doing it ourselves, maybe more, which is necessary for the house to create anymore value in the next 3 years ... OR

We save up through the brokerage to hopefully use as a down payment or just financial security on our next property + whatever we gain from the house in 3 years.  We're looking into house hacking as a way to start, but we fear it might be too slow of a burn starting at age 29 that might not pay off in the end, especially since we don't want to live in a duplex forever...we have to get out of it somewhere, somehow.

At $3600/year, it sounds totally unfeasible to do anything beyond our brokerage $500/month investment as any sort of savings for anything, whether benefitting the house or possible future expenditures and this has been bothering my mind for awhile now and created a lot of stress involved with the house.  I know the return is there, but it's just "getting" there.

I hope this post isn't so long that nobody would read it; I didn't know where else to ask/vent my thought process and hopefully someone might be able to shed some light on at least where to go.  I live in a small area of Michigan, so there isn't many connections through BP but there is lots of landlords/realtors and what not in the area I could connect with, but I wouldn't be able to actually pull the trigger on anything with these thoughts and issues in mind.

Thanks for reading.