Profile picture for stunnereclipse

Buy a house, rent it out, renters pay for your mortgage, whats the catch?

It seems like there are many properties you can buy and then rent them out and make money. For example Buy a $125,000 3 bed 2 bath house in Sac. Zillow says Monthly payment will be $771 with 10% down, inc. tax and ins. I could reasonably get $1100 for rent. Let's say the house is vacated once a month and I will add $50 for expenses per month. This still is a positive cash flow of $3,948. Am I missing something, whats the catch? Are people not doing this because the difficulty with a down payment?
  • August 26 2009 - Sacramento
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Answers (6)

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Profile picture for jal74
The amounts you are using as estimates are based on purchasing the house as a single family residential in which you live in it.

If you want to turn this into a business, your need to look at the expenses on which a business operates.

When you go to a bank looking for a loan as an investment, you will need to bring at least 25% down and at least 6 months of cash flow in reserve, and you will be looking at prime plus 3 up to prime plus 4 for a good credit, much higher for a bad credit.  Thus, you wont be looking at 5% loans, more likely 6.5% plus and your insurance costs will be at least twice as much.  In addition, tenants in low income neighborhoods tend to damage things quite a bit, so appropriating $50 a month is way on the low side, try $200 to $300 per month

Now you need to decide who is going to manage this rental.  You?  Are you willing to accept the 3 am phone call from the tenant that something is broken and needs to be fixed asap?  If not, you need to budget a consideral amount for a property management company to do that for you.

And taking 30 days to find a tenant?  Some neighborhoods can take upwards of 90-120 days to find qualified tenants.  Can you live without a rent payment for 4 months?  Can you afford to replace the hvac if it breaks 6 months from your purchase?

This is not to say that real estate investing can't be profitable, but its not somehting you get rich quick on, sorry, but those days are long gone and are not coming back for decades, if ever

Regards
  • August 26 2009
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An unexpected $5000 roof is always fun too ..
  • August 26 2009
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You can find profitable investment opportunities all over the country today.  Just be sure to buy in markets that make sense - that is they are stable with a good economic foundation. That's the starting point for all of our real estate investment opportunities.

Marco Santarelli
Norada Real Estate Investments
  • August 26 2009
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I am located in Southern CA and it seems that the market is very similar to  Sacramento. Elizabeth hit it spot on, at least in my humble opinion. A home priced at $125K first of all will get multiple offers. Usually it seems that the cash buyer prevails more often than not.

We are typically seeing multiple offers by cash buyers and those cash buyers are swooping in on investment properties. Cash buyer's have no monthly mortgage payments and once a tennant occupies the property it is income.



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  • August 26 2009
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There are so many reasons why many people refuse to jump into investment real estate:

Lenders require 25% down to give the buyer a good interest rate.

Some guidelines limit the number of properties an investor can own.

There is a lot of competition in Sacramento for these homes, and many listings agents receive 10 or 20 offers or more, so you can't just waltz in and pick up an investment home.

What happens if the home requires maintenance? A new roof? The water heater breaks? 

Some of these homes aren't located in the best of neighborhoods and are prone to vandalism.

If the tenant moves out, it could take another 30 days to find another tenant, but that mortgage payment still has to be paid.

You also may have the costs involved to evict the tenant should the tenant stop paying the rent.

 


 
  • August 26 2009
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Profile picture for Bette Defarm
I'm guessing:it's the immense amount of work and aggravation involved, not to mention the economy etc.etc.
  • August 26 2009
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