As many of you may know, I began investing in real estate a couple of years ago as a way to build money for retirement. In my “I Bought a House” series, I detailed how I bought a home, fixed it up, and flipped it for a decent profit. Now I've bought a rental property!
I just recently bought a small house in Hendersonville, Tennessee where I live. But this time, instead of fixing up the house and flipping it, I'll be renting it out.
With the last house, there was a lot of work to be done, some of which I hired out, some of which I did myself. This resulted in a fair amount of stress and a lot of busy weekends at the house doing repairs and upgrades.
Although I enjoy doing that kind of work, I decided that I really didn't want to do it again. It's just too much stress in addition to my normal work schedule as a dentist and my family obligations.
2 Heart Attacks Later…
Since I sold that house in October, 2012, I've had two heart attacks (with no detectable damage from each one, thank the Lord!). Because of that, my goal is to reduce my stress. So, rehabbing and flipping another house is off the table for now. It's way too much stress to have a dental practice, a family, and a house renovation all going on at the same time.
So after I flipped the first house, my realtor Sherrill and I started the hunt for my next real estate investment.
Over an 8 month period we looked at 30-50 potential rental properties to find just the right one.
When buying a house, it pays to be picky and get exactly what you are looking for, and that takes time. Fortunately, Sherrill was very patient with me. We would meet once every week or two and look at multiple houses each time as they came on the market.
We saw some real dogs that were in need of a major rehab, as well as a few decent homes that were worthy of investment with minimal repairs needed.
Found a Couple, But No Dice
During that search, I made offers on two houses, but got outbid both times.
Both of my offers were lowball offers because each house needed repairs. I also felt they were a little overpriced. I only had a limited amount of money to work with, so I had to make sure there was enough room to make the numbers work.
I didn't get either house, but that's a good thing. The last thing I wanted was a rental property with a poor return on investment. My goal was to get an annual return on investment of at least 10% (or more) after expenses.
Narrowing My Rental Property Focus
As time progressed, I decided to narrow down my search criteria and became more focused as to what I wanted in a rental property.
I decided I wanted a house close to my own so I could keep a close watch on the condition of the property. Also, it would be in a better part of town than some of the areas where we had been looking.
I wanted an investment property that would need a minimal amount of repairs in the beginning.
I also wanted to have a property management company to manage the rental property and minimize any headaches that come with finding renters, collecting rent, and dealing with tenant issues that might arise.
Narrowing my focus made it a little harder to find just the right rental property, but in the end it was the right decision because it allowed me to buy a property that was exactly what I wanted.
My Rental House Saga Continues
In the next several installments, I'll give you some of the details on the property I bought. I'll explain why and how I bought it, the experiences that I've had hiring and dealing with my property manager, and the trials and tribulations with the renter that was occupying the house when I bought it.
Until next time…
Have you ever invested in any rental property?
Tell me about your experience in the comments.
Read the rest of the series on my rental house here
Resources:
How to Start Investing- The Ultimate Beginner's Guide
It encourages diversity as a method of risk management. Applied to real estate, the 2% rule advises that for an investment property to have a positive cash flow, the monthly rent should be equal to or greater than two percent of the purchase price.
What is the 1% rule in relation to the property's purchase price? The 1% rule states that a rental property's income should be at least 1% of the property's purchase price. For example, if a rental property is purchased for $200,000, the monthly rental income should be at least $2,000.
There are many benefits of owning rental homes, including the ability to generate money. Owning rental property also comes with the ability to offer monthly income, as well as some potential tax deductions. But keep in mind that owning a rental home requires effort and risk on your part.
This rule outlines the ideal financial outcomes for a rental property. It suggests that for every rental property, investors should aim for a minimum of 4 properties to achieve financial stability, 3 of those properties should be debt-free, generating consistent income.
The 50 Percent Rule is a shortcut that real estate investors can use to quickly predict the total operating expenses that a rental property investment is likely to generate. To work out a property's monthly operating expenses using the 50 rule, you simply multiply the property 's gross rent income by 50%.
In the realm of real estate investment, the 80/20 rule, or Pareto Principle, is a potent tool for maximizing returns. It posits that a small fraction of actions—typically around 20%—drives a disproportionately large portion of results, often around 80%.
Keep in mind, when it comes to real estate cash flow, calculating your expenses and rental property income will be your number one key to success. Anything around 7% or 8% is the average ROI. However, if you'd really like to succeed, you should always aim higher at around 15%.
Most of the time, you can get positive cash flow right from day one with your rental. Figuring out your profit for the year is a matter of taking how much rent comes in and subtract how much money goes out for expenses like taxes, insurance, and mortgage payments. What you're left with is your profit for the year.
If a property rents for $1,500 per month, after a quick calculation, you know that the purchase price should be around $150,000. Keep in mind that the rental market dictates rental values, not the purchase price of a home.
It's called the 2% rule. This applies to any investment, and says that an investor will risk no more than 2% of their available capital on any single investment. In real estate, this means that a property is only a good investment if it will generate at least 2% of the property's purchase price each month in cash flow.
Home ownership is a great investment because it's a method of forced savings. When you buy a home with a 30-year mortgage and make monthly payments, you will own a home to sell at the end. If you rent a property for 30 years, however, you won't ever get any of your monthly rent payments back.
Depending on location and initial investment costs, becoming an Airbnb host can be extremely profitable. To get the best return on investment for your Airbnb, you need to find a city that has affordable housing costs, as well as enticing attractions and amenities.
As part of its REALTOR safety program, NAR trains its REALTORS to practice the “10-Second Rule.” It says one of the reasons REALTORS and agents end up in dangerous situations is because they are not paying attention. To counteract, they should take 10 seconds to observe and analyze their surroundings.
Roger shared his 10/90 rule, balancing risk by investing 10% in higher-risk projects and 90% in stable, cash-flowing properties. This strategy helps navigate economic cycles and maintain a steady income stream.
How the One Percent Rule Works. This simple calculation multiplies the purchase price of the property plus any necessary repairs by 1%. The result is a base level of monthly rent. It's also compared to the potential monthly mortgage payment to give the owner a better understanding of the property's monthly cash flow.
These days, many real estate experts completely disregard the 1 percent and 2 percent rules. The markets where properties meet the rule criteria usually aren't located in the best neighborhoods. And to meet the 2 percent rule, rental properties must be on the less expensive end.
A rule used to uniquely define a system and requires specification of two independent properties such as specific internal energy, specific volume, specific enthalpy, absolute temperature, and specific entropy. All of the other properties can be found if the two independent properties are known.
If your annual return was 3%, that number would increase to 24 years. The Rule of 72 is a simplified estimate and may not be perfectly accurate, but it can provide a quick and easy way to consider potential growth of an investment or rental property.
Many lenders use the 2/2/2 rule to evaluate loan eligibility, which typically requires: 2 years of W-2s. 2 years of tax returns. 2 months of bank statements.
Address: Suite 492 62479 Champlin Loop, South Catrice, MS 57271
Phone: +9663362133320
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Hobby: Digital arts, Dance, Ghost hunting, Worldbuilding, Kayaking, Table tennis, 3D printing
Introduction: My name is Kieth Sipes, I am a zany, rich, courageous, powerful, faithful, jolly, excited person who loves writing and wants to share my knowledge and understanding with you.
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