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
What Is the 2% Rule in Real Estate? The 2% rule is a rule of thumb that determines how much rental income a property should theoretically be able to generate. Following the 2% rule, an investor can expect to realize a positive cash flow from a rental property if the monthly rent is at least 2% 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.
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.
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.
According to this Rule, the property's gross monthly rental income should ideally be at least 2% of the property's purchase price. For instance, if a property costs $200,000 to buy, the monthly rental income should be around $4,000 (2% of $200,000) to meet this guideline.
The 50% rule or 50 rule in real estate says that half of the gross income generated by a rental property should be allocated to operating expenses when determining profitability. The rule is designed to help investors avoid the mistake of underestimating expenses and overestimating profits.
A good profit margin for rental property is typically greater than 10% but between 5 and 10% can be a good ROI on rental property to start with. What is the 2% cash flow rule? The 2% cash flow rule of thumb calculates the amount of rental income a property can expected to generate.
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.
The 1% rule, which states that the monthly rent you collect should be at least 1% of the house's value, is considered by many real estate investors to be a reliable measure of a profitable rental property.
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%.
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.
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment.
The drawbacks of having rental properties include a lack of liquidity, the cost of upkeep, and the potential for difficult tenants and for the neighborhood's appeal to decline.
However, for those who want to avoid the hassles associated with homeownership, the costs of upkeep, and property taxes, renting might be a better option. Of course, it depends on an individual's lifestyle, financial situation, what they can afford to pay in monthly rent, and whether they're working or in retirement.
The 2024 real estate market is full of opportunities but also some uncertainties. Home prices are rising, but the pace has slowed. Interest rates are higher, making borrowing costs more expensive, yet housing demand remains strong with a noticeable shortage in supply. Timing is crucial in real estate investments.
The 2% rule is a guideline stating that an investment property should generate monthly rent of at least 2% of its purchase price. For example, if a property costs $200,000, it should bring in at least $4,000 per month in rent ($200,000 x 0.02 = $4,000) for the 2% rule to be satisfied.
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.
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%.
Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
Hobby: Reading, Ice skating, Foraging, BASE jumping, Hiking, Skateboarding, Kayaking
Introduction: My name is Cheryll Lueilwitz, I am a sparkling, clean, super, lucky, joyous, outstanding, lucky person who loves writing and wants to share my knowledge and understanding with you.
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