Thinking About Rentals

January 13, 2009 · 3 comments

As I mentioned in my 2009 Goals, it’s time to diversify our business model a bit and start accumulating some property to build longer-term cash-flow and to reap the benefits of future appreciation when the markets turn. We’re certainly not giving up flipping houses — we just love the idea of a alternate exit strategy for our properties (when appropriate).

Along these lines, we put in two offers today on properties that would likely make great rentals. They are both 3 bedroom, 2 bath single family homes on the same street; the goal would be to pick them each up for under $50K, put no more than $10K of work into the rehab, and rent for at least $800 per month. Using all worst-case assumptions, this would allow me to eventually refinance all costs out each property (i.e., have a loan for the full amount of the purchase and the rehab costs), and still generate a small monthly profit. Best case, my monthly profit would be up to $200 on each property, with absolutely none of my own money invested.

Both offers were a good bit below list price (I don’t want to leave much room for error with my first rentals), so I not entirely confident I’ll pick either of these properties up, but we’ll see…

In future posts, I’ll go into more detail on the financial aspects of the rental properties I’m considering; for those interested, I’ve written a number of posts and tutorials in the past about how to perform financial analysis of single family rental property:

Why Invest – Cash Flow vs Appreciation

Performing Cash Flow Analysis

Rule of Thumb – 50% Rule

Rule of Thumb – 2% Rule

And for anyone seriously interested in the topic, here’s a more in-depth tutorial on financial analysis of investment property…

3 responses to “Thinking About Rentals”

  1. Seth says:

    I’ve babbled on more than enough about the subject of late at my own site, but I really think rentals will be the place for investors to be for the next 12-24 months.

    They take a slightly different rehab approach and have their own set of headaches, but low long-term mortgage rates, motivated sellers, and stingy lenders should be a nice recipe for success for investors able to buy and hold cahs-flowing rental properties for 5-10 years.

  2. J Scott says:


  3. Felicia says:

    Here we go! I am really looking forward to what you are going to say (and do) with regards to rentals. I’ve been interested in getting into real estate, but I’d like to have the cash cushion to do any deals (no OPM or weird financing at this point). That being said, I have found myself “in real estate” – I put a lease to purchase contract on my home after moving from Texas. I’ve had someone paying me rent every month for the past 4 years. Originally I had hoped to sell the house and buy my own home in my current state, but I’ve definitely liked the monthly checks to cover my mortgage without much “work” from my end. 🙂

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