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Updated over 4 years ago,
Should you "buy" rental property cash flow
Hi community,
I have a single family rental and live in a duplex that has tenants. I sold a duplex recently that wasn't cash flowing well and now have about $40K to put down on a new property (these funds are separate from my 6 month emergency fund). I have no debt and am accumulating savings at about $4500 a month thanks to my day job and the excess from my current rentals. I'm trying to find one, maybe two cash flowing properties between now and the next couple years that cash flow enough to pay approx $2K a month. If nothing were to change for me financially, that would result in me having all my living expenses paid (based on current rental cash flow) plus an additional $2K of expendable income, which I would probably invest in the stock market at that point. Now I live 2 miles from my job, so I haven't been looking at the approach of moving into a new property to take advantage of owner occupied benefits and then moving later. The further you move from downtown, the less expensive properties are. House hacking is not completely out of the question, but due to the volatility of the pandemic and everything else 2020 has done, I'm trying to stay in one good location and buy a straight out rental -- also I'm at a point where I can afford to do something like that.
I'm not good at finding "deals" and can't seem to find the support or real estate agents who offer helpful advice with the rental searching. They sent me mls listings but don't offer good insight into rental trends or neighborhood quality or property investing in general (maybe that's not their job...?). I was wondering if I shouldn't just sit tight and save $4500 for say 6 months and then add the $27K to the $40K and buy a property but put $67K down so that the mortgage is low enough that the property cash flows well. (These numbers are to illustrate my point - not necessarily 100% exact.)
The lack of support in being able to talk to an investor locally or find a mentor is making the rental search so stressful. I'm getting blasted with mls listings all over the map with no guidance. Also my agent presents things as - if you want a higher end property, you'll likely get good tenants but have low cash flow. You can do section 8 or lower end properties and get great cash flow but you will have a lot more headache (and from experience the agent is correct that I do not like headaches). The agent said I can get a property mgt company if I go the cash flow multi-unit or lower quality housing route, but then you lose 10% of your profits each month and the 60% placement fee which keeps me even further away from the $2K target. I've been looking at homes but my agent tells me it's a hot market and for my current price range (about 130K - 190K in the greater New Orleans area) it's extremely competitive right now and I probably won't find a "deal" and cash flow will be minimal (~$240.00 a month-ish) So I'm trying to take an easier route based on my current income, profit, savings rate and low interest rates and wonder what others think of this.
Does it make sense to stockpile cash for a few more months w/the intent of putting enough down to force the cash flow vs the stress of driving around outside of work hours and having frustrating conversations with my agent? Or do I need to just buy something, make sure it cash flows but if it's below my $2K threshold, just save after the purchase and then buy more properties until I get to that $2K. I've been listening to podcasts, youtube videos, reading blogs and talking to random people ad nauseam but don't feel like I'm getting any more clear insights. The "buying" cash flow seems to be a simple route that would get me to where I want to be. My only concern would be waiting so long that interest rates go up (or I get laid off from the current job - or any other unforeseen risk that is slightly less likely to happen with a short period of time due to my current advantages). But I don't think any of those things are likely to happen in the next 6 months. Yes I'd be in the spring and it might be competitive again, but I'd have the power of a lot of cash (based on my price points) and good credit on my side as a tailwind. Also, after having been laid off this year due to Covid, I feel that my current well-paying job and the pandemic induced interest rates are a snapshot in time that I should take advantage of since those things could (and will change) at some point. The lender I'm speaking with now quoted me a rate of 4% w/the property as a non-owner occupied rental, which I think is amazing. Now I just want to buy something and make sure it cash flows...
I'd like to hear from anyone else who has had a similar dilemma or what people's thoughts are.
My apologies if this post is too long or rambly. It's my anxiety.