Looking for advice on my second investment

[John Daly]

Hi everyone! I am new to these forums and pretty new to bigger pockets. I have an above garage apartment behind my house which I rent out. The house is about 1.5 years old so I have been a landlord for that long. I'm getting $1000 per month for it and I have an excellent tenant. I'm looking at a house in an up-and-coming neighbourhood here in Chattanooga. The asking price for the house is $120,000. I'm thinking about the BRRRR method and I would like to buy something in that area that would generate an income. My daughter will start going to the University nearby in a few months. Instead of paying rent on student accommodation, I would like to buy this three bedroom house and have her friends rent the other two rooms. I have equity of about $280,000 in my home and roughly $15,000 cash. Any advice would be greatly appreciated. The prospective rental house needs some cosmetic work and maybe an AC unit upgrade. What type of loan should I apply for? Should I even pursue this? I am a newbie, so I will be grateful for any advice given. Thanks!

[Ken Dillard]

We did a very similar thing as our first intro to being landlords. Our daughter was attending UT-Knoxville and after one year of paying rent we realized there had to be a better way. So we purchased a 3 BR condo right off campus. The rent of two BR pays all out of pocket for mortgage, utilities, HOA, etc. It cash flows even to slightly negative depending on utilities each month. It has appreciated slightly over the last two years, AND we have avoided $14K+ in rental expense we would have been paying. When she graduates we will re-evaluate if we want to hold and rent the full 3BR for cash flow or sell and roll to something else. We have been happy with the decision. So things to think about:

1. We also rent to her friends.  This was awkward at first but we run it like a business.  Girls who we have known for a long time can think of this as just staying out our house versus "renting".  We had to be firm a couple of times.
2. You mentioned a house - just check zoning and possible HOA.
3. We are 3 hours away so had to set up a structure for lost keys, hot water heater leak, and all the other joys of home ownership.  You are close by but give some thought to if you are going to be on call 24/7.
4. We went with a Commercial loan through a regional bank and was able to put less down than some of the national banks were requiring.

As I said we have been happy and knowing people in the community made it easier to find renters than hanging a "For Rent" sing on the fence.

Good luck!