Home > Rental Property > Rental Property Series:Buying Our First Rental Property

Rental Property Series:Buying Our First Rental Property

owning rental property

Ain’t she a beaut?

After years of getting in position to buy a rental property, we finally did it! We’ve been close a few times but just couldn’t pull the trigger. We always wondered could we make the payment, would it cash flow, would our tenants assemble a meth lab in the bathroom?. You can do as much research as you want, but eventually, you take the plunge or you don’t. Right now seems like the perfect time for a number of reasons.

We have more than enough for the down payment. On any property purchase, you are less likely to become underwater if you have a sizeable down payment. If you are buying an investment property, it is required that you have 20-25% down. We’ve been saving like mad for the last two years. Buying this property means so much more than having the stuff we previously piddled our money away on.

Rates are probably never going to be much lower. You never really know on this one, but we have locked in a rate of 4.25% for a 30 year fixed term. We have every intention of paying this loan off way before 30 years. Because we are new to buying investment property, we decided on the longer term. If we do have a problem finder a renter, this payment won’t break the bank.

I am switching to part time work soon. At the beginning of the year, I will no longer own my current business and am essentially a contract employee. I believe I will be able to earn around the same amount of money as I do now, but it would probably take two years of new employment before the bank would give us a loan. It is possible to qualify sooner like Crystal and Mr. BFS , but to be safe, I’ll assume two years.

We found a house that fits our criteria. I think the most important thing when buying a rental is to write down what you are looking for before you start looking. You can’t search like you might for your primary residence.  It’s all a business decision. Our rules for this purchase included:

Purchase price and cash flow:  Our maximum price was $80,000 including repairs. (I know, it is insanely cheap to buy real estate here.). We got this house for $63, 000. It will need about $3000-$5000 in repairs.  With the 25% we are putting down, our payment will be just under $300 a month, inclulding insurance and taxes. It should rent for $700 minimum, $800 if we really go HGTV on the kitchen.

Location, location, location: We wanted property on the North side of town. The neighborhoods are nicer, and the chances of getting a meth cook are much lower.

Floor Plan: This is a small house, 950 square feet, but it has an open living room/kitchen area and the bedrooms are an OK size. It also has a good sized fenced yard.

Lack of major repairs: We did not want a house that had foundation problems or needed major repairs on the roof or electrical system. Our inspector did not find any major train wrecks. We do need to do some major cleaning ( I think the prior owner cooked bacon and fried chicken every day.) and painting. The kitchen needs a new stove, vent, and counter tops. The refrigerator and dishwasher work fine.  The bathroom has a lovely mint green tub that we will keep for now, but we’ll have to replace the flooring, vanity and toilet.  The owner added laminate floors throughout most of the house, and left us a working washer and dryer, which will be a bonus to the tenant. If they break, we won’t replace them. The house has a huge gas stove, which works well, plus some electrical baseboard heaters, which have to be replaced. The yard is brown, but a little water should fix that right up. Overall, lots of elbow grease, but not much skilled labor required.

Our other dilemma was to determine if we would manage rental duties ourselves or use a property manager. Since we have no time and haven’t done this before, we have chosen to go with the manager. I really don’t want calls at two A.M. to change a light bulb. We live in a small town and renters could be patients of mine, or my husband might have someone’s kid in his classroom (really awkward if we have to evict them). We plan to be pretty anonymous. With the projected cash flow, paying $70-$80 a month to let someone else deal with the headaches makes more sense for us right now. When I am working part time, it might be a different story. Although I’ll have to do some reading on sites like Prairie Eco- Thrifter to become a better repair lady!

This is a really exciting time for our family. This rental property is our first step in diversifying our income streams so we can work less and do more of the things we love. I intend to keep my office building as a commercial rental when I sell the business, so this makes two income properties. Our goal is to have five properties within the next ten years. Of course, this one  could go way South, and we might decide being landlords isn’t for us. We’ve done as much homework and planning as we can, so we’ll see. We want to get everything done and have a renter by October 1. I’ll keep you updated.

What is your experience with rental properties? Should we go with the property management company? Are we going to end up with a meth cook anyway?

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

50 comments

  1. Congrats and good luck. Sounds like this is your best opportunity to achieve your dream.

    I understand your desire to stay anonymous from your tenants, but I would probably be more hands-on myself.

  2. That’s quite an endeavor! Sounds like you’ve done all the preparation and legwork to get ready, though, so I’m sure you’ll overcome all those little bumps you meet along the way. Congrats!

  3. Congrats on taking the plunge into the property rental biz Kim! With property prices so low there it sounds like a great opportunity. That is surprising how much you can rent it out for if the property itself is so cheap to buy. Again another reminder that I need to move out of this city to somewhere more affordable. A property for under $80k sounds impossible to me. Here I’d be lucky to get a decent 1 bedroom apartment for $300k.

  4. Wow, congrats!!! You got an excellent deal!!!

    We are moving at the end of September or beginning of October and renting out our current home starting October 15th. We already have our tenant lined up and she already put down her deposit just to ensure we don’t look for anyone else, lol. It is Jacqui, our biweekly housekeeper, hahaha. She fell in love with our house and called dibs as soon as she knew we were moving. She already likes to tell me about all the things she will make prettier, like our yard. 😉

    So we are going to be new landlords soon too (well, we have been renting out a spare bedroom in our own home for 3 years off and on, but that’s not the same). Good luck to both of us!

  5. The math on that property looks pretty good. Certainly better than things in my area. I get about a 15% return on capital depending on the cost of future repairs.

    Good luck avoiding the meth cooks!

  6. Congrats on buying your first rental property, Kim. 🙂 You must be so excited.

    I sure wish we could get a house for that cheap around here.

  7. She’s a beauty! Some people would like at that and see a Detroit special, but you see opportunity! That’ pretty awesome that you’re on the path to bringing in additional income. I’ve given the same thing some thought, and figured I would go with a management company until I got the hang of things myself. Good luck and happy tenant picking!

  8. Congrats! That is such a great deal and I’m very excited for you guys. It’s actually something we would like to do some day in the future.

    We just bought our first house (or are about to, closing in a month) and it has a studio apartment setup. So while this isn’t entirely a rental property since we will live there too, we will get some experience. I don’t think you should worry too much about bad tenants, just make sure you get rid of as much liability as possible through the lease (again, I haven’t been a landlord yet so take my advice with a grain of salt).

    Congrats again!

    • We’ll certainly learn lots for sure. I’m anxious to hear how your rental set up goes as well. At least, you’ll be able to keep an eye on your tenants. That could be good or bad I guess.

  9. Wow, congrats on your purchase. I hope the tenant issue works out really well for you. I regret to say that I can’t give much advice in this field. Keep us posted on how this property does by you you never know when someone (aka lazy me) might get inspired to do the same! – and learn from your experience.

  10. How exciting – massive congrats 🙂

  11. Congratulations. We want to get into rental properties too but we are not quite there yet. Hopefully soon. Best of luck with everything.

  12. I like your business acumen. I’ve invested in commercial properties, mainly hotels and strip centers and few commercial land parcels. Location ought to be the prime factor while any rental property you consider buying. It seems that you have done your home work well. Congrats!

  13. kim, that house looks like an awesome first rental property, and the price really can’t be beat. how much of a monthly profit are you looking at after the mortgage and normal/repairs are made? ..

    houses are fairly cheap here, and of course– as you mentioned, mortgage rates will never be lower.. which makes finally getting a rental property, an appealing option.

    • We should clear $300-$400 per month after mortgage, taxes, insurance, and property mangement if we can get our desired rent of $700-$800 per month. We’ll spend $3K to $5K from savings fixing it up, so we could potentially be in the black after a year unless we run into any unknown repairs. I’ll keep readers updated on how well or poorly we do.

  14. Good luck to you. Isn’t it wonderful to live in a low cost area. Here’s to many years of rental income 🙂

    • Thanks Barbara. I wonder sometimes about our area when we want to see a concert or something cultural, but overall it’s pretty sweet!

  15. $80,000 for a property! That sounds like such a good deal! Us here in Vancouver are unable to get a property that cheap! Hope you are a ‘handy’ person or have good contacts for maintenace work! Good luck – hope you get some good tenants that will treat the house like their own. I’ve been lucky that all my tenants have been perfect! Its all about the judge of character!

    • Why didn’t I think of sleepymom for my blog title! We are certainly trying to take advantage of property values in our area. Also being in a small town, you kind of find out who the good handymen are, but we plan to do as much as we can by ourselves. It’s a big challenge.

  16. The rental property seems great! With a price like that, I can’t see much downside. Man, I clearly need to move elsewhere. Housing is way too expensive in California.

    I think it was a good choice to go with a property manager. I don’t know how much sense it makes to be the property manager at this point with one property and not a significant chunk of rent. When you get four or five properties it’s a big different I think. Looking forward to seeing when you’re able to find the first renter.

  17. I envy you – being in concert on wanting to own rentals is great. I’ve got the bug, but hubby doesn’t…

    Thanks for mentioning my Prairie Eco Thrifter article Save Money, Develop Important Home Owner Skills!

  18. I believe in owning real estate but, carrying debt to do so goes against the whole premise of becoming debt free. 100% of foreclosures happen on properties with a mortgage. We tend to follow the Dave Ramsey philosophy of buying real estate with cash.
    I wish you luck but, our rental was not a blessing when we carried a mortgage. We look forward to saving and buying one with cash.
    Love your sight.

    • I totally respect that point of view, but obviously view low interest mortgages differently. We should have everything paid off within about 8 years and then the real fun begins!

      • The fun will begin. We have both our home and cabin paid off and are about 10K away from buysing a rental prpperty for cash. We live in Colorado as well, but Denver metro area so the houses cost more.
        It was so tempting to take out a mortgage with the low rates but, we didn’t want the risk.
        Don’t get me wrong…i am happy for you and hope it turns out wonderfully and you are correct in 8 years you will be amazed at the freedom and peace you will feel.
        Blessings to you.
        Love your site. Hope you get a chance to check mine out.

      • The fun will begin. We have both our home and cabin paid off and are about 10K away from buysing a rental prpperty for cash. We live in Colorado as well, but Denver metro area so the houses cost more.
        It was so tempting to take out a mortgage with the low rates but, we didn’t want the risk.
        Don’t get me wrong…i am happy for you and hope it turns out wonderfully and you are correct in 8 years you will be amazed at the freedom and peace you will feel when you are completely debt free!!!!
        Blessings to you.
        Love your site. Hope you get a chance to check mine out.

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