Acquiring Rental Property

Discussion in 'General' started by Gorilla George, Feb 14, 2020.

  1. What is the best way to acquire rental property, pay cash or finance it?

    The house will be paid off in a few months. It was originally built in '09, and of course remodeled last year. We are looking to downsize into something smaller, and I am thinking about just paying cash for a condo so we can still be without a mortgage.

    Then we will rent this house out.

    I want to build up a few more rental properties. I have heard two different "schools of thought" for doing so.

    1. Pay cash for them, that way there is no mortgage so you aren't on the hook for the payment if they aren't rented out, and so there is no interest. If you need cash later, you can always sell one of them.

    OR

    2. Finance them, and keep your cash in hand. Let the renters pay the mortgage payment, so you aren't out any money. Then if you want to add additional to the principal every month to pay them off early, you can.

    Which is better? Or is there a 3rd option I don't know about?

    I don't necessarily like the idea of taking out mortgages for them. I don't like the idea of having my name on another long term loan. Even with adding to the principal every month, it will still take years and years to pay them off. But if it makes more financial sense for some reason, then I can go that route.
     
  2. opinion914

    opinion914 Well-Known Member

    None of us can predict the future but I'd suggest paying cash. When the unit is vacant you'll sweat less at night knowing all your paying out per month is tax and minimal utilities. Sure you could do a mortgage and leverage your cash in other institutions but see 1st sentence.
     
    Dragginass likes this.
  3. D-Zum

    D-Zum Alex’s Crew Chief

    First World Broome Problems

    But seriously.....in my humble opinion

    A house is only a good value when it's paid off. Mortgages are debt...it's just that simple.
     
  4. HPPT

    HPPT !!!

    If mortgage rates are still near historical lows (they are over here), it would be a shame not to take advantage.
     
  5. Montoya

    Montoya Well-Known Member

    +1. Although personally, if at all feasible, I sleep a lot better not having any debt obligations.
     
  6. HPPT

    HPPT !!!

    No doubt. Peace of mind doesn't show up on your balance sheet but it is very valuable.
     
    rob linders and younglion like this.
  7. brex

    brex Well-Known Member

    With today's rates, get the mortgage and leverage that cash in other investments. You can have the cash grow at a greater rate and still have it on hand if the need ever arises to pay off the home.
    But my experience with rental properties has been a greater return on condo/townhomes than with renting houses. Less hassle just letting the condo/townhome association deal with the grounds and building than keeping a separate service or two.
     
    Vstate60, tony 340 and Newyork like this.
  8. omatter34

    omatter34 Well-Known Member

    Option 3:

    Leverage the mortgage rates now and if you decide you don't like the payments, pay it off. Seems like the best option to me if you have the funds to do so.
     
    rob linders, Vstate60 and Phl218 like this.
  9. rice r0cket

    rice r0cket Well-Known Member

    Idunno how you're defining peace of mind, but just about every economist is calling this market oversold.

    What's worse, losing your life savings in a bubble real estate market, or a short sale that goes on your record for 7 years?
     
    nd4spd likes this.
  10. Dave K

    Dave K DaveK über alles!

    Use someone else's money for free (or near free), make money on yours.

    Renting out the house, can you actually use it to make money? I mean, can you rent it out at a good rate and be able to bank the cash without worrying about some shit nugget trashing the castle?
     
  11. Chino52405

    Chino52405 Well-Known Member

    Invest in something that doesn't involve tenants. Never underestimate how one legally entitled occupant of something you own can fuck up your life.
     
  12. Mongo

    Mongo Administrator

    Can't see how your money invested would make less than the interest rate on a home loan - granted if you have more than one that may change. I'd finance at least the first one.
     
    cav115 likes this.
  13. Mongo

    Mongo Administrator

    Also keep in mind with your travel you'll need to find a good management company and that will cost you a good chunk.
     
    worthless likes this.
  14. HPPT

    HPPT !!!

    Which market are you saying is oversold? Real estate? Isn't that a good thing if you're buying? :confused:

    Anyway, I was thinking of "peace of mind" as being in the position where you don't owe anyone anything, and you're not worried about what financial markets are doing. I can certainly see the attraction.
     
    cav115 likes this.
  15. Steeltoe

    Steeltoe What's my move?

    With Broome money have you thought about commercial? Even better get your hooks into a convenience store gas station. Talk about a captive audience and all the bottled water you can ever want.
     
    Rebel635, 969, badmoon692008 and 4 others like this.
  16. D-Zum

    D-Zum Alex’s Crew Chief

    :Poke:
    Hey there Mister....that's Conservative Talk!!!!
     
  17. Dave K

    Dave K DaveK über alles!

    I assume you're in a built up area or at least a growing area? If they are not already there, Get the land off the main road and put in a gas station with mini market (you'll lose money on the gasoline but the beer, smokes and snacks will make you bank). Next door a Jiffy Lube. Next to that put in an car wash. Shit, if you have enough people put a car wash in the back of the gas station and build the separate one.

    Once you are making money from those three, put in another gas station with the same shit a few miles down the road or in the next town over.

    Buying and renting townhouses is not a bad business but you will need a rental agent (like Sean said) and there is risk to all that. Gas stations and Car Washes (if under represented in your area) are licenses to print cash.

    Do not open a restaurant! If you've ever even thought about it, forget it. If someone tries to talk you into investing in one, do not listen. If you HAVE to have a restaurant, get a hot dog cart, at least then you'll have a chance of breaking even. Maybe.
     
  18. cpettit

    cpettit Well-Known Member

    I have a rental house and travel a good bit for work. Not gone as much as you are but it's enough to make it a pain in the ass. If something is going to go wrong it will happen while you are overseas and they will call/email until it's fixed. Seems like some other less time consuming investments would be easier.
     
  19. Sabre699

    Sabre699 Wait...hold my beer.

    ^^This^^

    Option 4: Don't do it. You're not the poster child for dealing with people (nor am I) and renters can drive you nutz. Buy your downsize with cash and sell the castle and bank the funds. If someone fucked up your rental they'd probably be dealing with a plethora of uppercuts and that will lead to litigation. Meh...just my .02 cents. Rock on. Good luck.
     
    Funkm05 and Gorilla George like this.
  20. Steeltoe

    Steeltoe What's my move?

    Duplex. Air BNB the other half.
     
    R Acree likes this.

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