30K to get started in the Raleigh/Durham area

[Danny Kaminsky]

Hey BP community!

I have $30,000 set aside for real estate investing, and I grew up in Chapel Hill and would like to stay in the area for at least a little while, so I’ve been thinking of buying a single family home here. My general plan is 200k or so for a house that doesn’t need major work, put down 10% with traditional financing and live there for a little while, and have 10k left for minor repairs and cash reserves, with the intention of renting the house out at some point in the near future. I probably won’t have much if any cash flow, but I believe in the appreciation in the area. Am I totally off-base? Should I be looking at a different asset class or area?

Thanks so much!

[Mitch Miller]

Danny, Welcome to the Bigger Pockets and what seems to be your first steps in the REI.

First to address your question, Yes its a good start to use a primary loan to lock in the best interest rates and lowest down payments then later turn it into a rental.  It is also wise to keep some cash back for repairs and other costs that come with owning a home.  

I would suggest you look at this as a math problem if you plan on this house being an investment. There are plenty of mortgage calculators out there that can estimate your P&I payment. Then you will need to add in tax and insurance, tax can be looked up and insurance is fairy easy to estimate. From there since you are putting less than 20% down you need to add in PMI. That will give you your monthly costs at current state. You can add in vacancy, maintenance and property management to see your full burdened cost once you turn it into a rental. I would as yourself two questions, first does the cost of the property burden your saving and investing goals while you live in it? Second does the area support rents that make sense to eventually rent it out to your standards? I myself invest in cashflow but if you are banking on just appreciation then as long as those carrying costs are not too much and you feel confident that the properties are in the path of growth, go for it. Another opportunity is get roommates and house hack that way.

Best,

Mitch