First rental property

Akono Hite · 2019-04-30T02:33:05-07:00

I am a first time poster, but have checked out the site literally for years! I just have a question and figured it would be a good first time question. I currently live in a small town in Montana. I have been here for 12 years. Two years ago, I purchased a 4b 2 1/2ba town house in my town, which is a college town. I have never been totally happy here but I am stuck here due to parenting issues so I decided to live to the fullest and try to progress while I am here.I am now at a crossroad where I am ready to leave here for greener pastures. I have a dream of being a real estate investor and want to leave here and acquire some properties. My question is this should I sale my home or turn it into a rental and count it as my first property? I will have about 15k in an account to service the property if needed and am trying to set up a team as I would like to self manage because my mortgage wouldn't leave much cash flow after rent is paid so I would like to try to keep some money for myself. I dont have any other experience managing properties other then the few years of research that I have done. Some advice from experienced investors would be appreciated to get me headed in the right direction. Thanks!

Tim Herman

Member since 2018 · 2k+ posts · 1k+ votes

7y

@Akono Hite if you have been on the site then the 1% rule. $1000 per month rent then purchase price =$100000. If your property doesn't meet the 1% rule it will be negative cash flow. I do have some properties that are appreciation plays but if I was starting out I would make sure it cash flowed. If I was starting over I would but multifamily 2-4 units with 3-5% down and move every year for 10 years. You will end up with 20-40 cash flowing units.

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Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

7y

@Akono Hite

We need a bit more information on the property. How much did you pay for the property and how much is it worth now? What does it rent for? If you took the money from the sale and bought a new place in your new town, how much would that cost and what would you get for rent? If you bought the place 2 years ago and sell it, unless houses have appreciated in price, you will lose money on it by the time you pay realtor's commission, closing costs, etc.

1 Reply

Nathan GesnerBusiness Member

Moderator

Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

7y

Sell it.

Based on what you've told us, it's not a cash-flowing property. A good investment will cover the mortgage, insurance, taxes, allow you to set money aside for vacancy, repairs, maintenance, and property management, and then still have money left over as "cash flow". It doesn't sound like this property performs that well so you'd be taking a big risk, particularly when you have no experience as a Landlord and intend to manage from a distance. All of these factors add up to a recipe for disaster.

Cash out the property while the market is hot, educate yourself on what a good investment looks like, and then patiently find and purchase a solid investment at your new location. This may be a great time to house-hack a small multi-family and dip your toes into the investing waters while also buying a place to live.

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Akono Hite

OP

Member since 2019 · 6 posts · 2 votes

7y

Thank you @Tim Herman and @Theresa Harris I appreciate the quick response.

I bought the house for 218k at 4.125% interest. A unit identical to mine just sold for 251k. Looking at the 10% rule, I am going to say that maybe I should just sell it. I could probably rent it out for 1650 but that still isn't meeting the criteria for the 10% rule. I just figured that the deal was done with this house and I had it and it was my first so I should make it work. But just from your responses, I know that I probably need to get rid of the house and look for a better deal.

Thanks again for the input!

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Theresa HarrisPro Member

Member since 2019 · 15k+ posts · 11k+ votes

7y

@Akono Hite If you can get $250K for it, sell it and use what you've learned to move on. As you are moving to a new town, it will be easier for you, and less expensive, as you can manage it yourself. Good luck!

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Akono Hite

OP

Member since 2019 · 6 posts · 2 votes

7y

@Nathan Gesner Thank you for the blunt response. I think I am having a hard time with it because it was my first home and I went in as a home and not investment. I love the short sweet response of sell it. I have to get to that level where I think with my head and not heart.

2 Reply

Thomas S.

Member since 2016 · 13k+ posts · 12k+ votes

7y

Definatly sell it to move. Having a single property long distance, especially one not producing financially, is a mistake. Poor business decision to hold on to a poor investment simply because you already own it. Personal homes very rarely make for acceptable investment income properties.

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Taylor Roeling

Fort Collins, CO · Member since 2019 · 185 posts · 61 votes

7y

@Akono Hite I'm glad you finally posted! BP is such a great place for literally any type of question you have. You said you had been stuck in Montana, but are you looking to get out of Montana now? Obviously, that is a personal choice that is up to you. I will say college towns are some of the best places to invest in property because there will always be a need for tenants and the town will basically sell itself! A 4 bedroom would be ideal for college students who love living in houses! However, you could also sell your house and take the profits to invest somewhere else or move somewhere else if you need a change. It really is up to you! There are pros and cons for selling or to rent the property.

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