debt, debt repayment, rental income property

SHOULD YOU BUY A RENTAL INCOME PROPERTY WHEN YOU ARE IN DEBT?

should you buy rental income property when you are in debt

If we are ever going to pay off this debt, we are going to have to get creative.

So, we have a plan. We haven’t really decided if its a good one or not.

Here is what we are thinking:

We have not narrowed down exactly where we will be moving, but in some of our options (OK, AZ, CA, OR) the cost of buying a house is SO cheap. Like, you can buy a decent house (Think 3-4 bedrooms, 2-3 bathrooms in a nice neighborhood) for $120k. Mortgage payments for a house at this price range around $600-$800 month, including taxes and insurance according to Bank Rate. Obviously this would not be a house we could find in California. And obviously these are not multi-unit homes. Multi-unit homes run a little higher. For a home where both sides of the duplex have 2-3 bedrooms and 2-3 bathrooms, it seems to get run to about $200,000, or $1200-$1600 per month.

We are considering purchasing either a single family home that we will live in for about one year and then move and start renting it out, or more ideally, purchasing a duplex, living in one side, and renting out the other side. In the areas we are looking at, at least in a couple of the aforementioned states, units like this rent out for somewhere between $850-1400 a month, essentially the cost of our mortgage plus some likely maintenance fees that will come up. In other words, it would allow us to live in the duplex for free or at least for a very low cost.

Sounds too good to be true, doesn’t it?

Certainly there are cons to renting, and these are my top concerns:
1) Finding legit tenants and dealing with bad ones.
2) Collecting rent every month.
3) Taking on more debt.

First, finding good tenants. Luckily there is a lot of good information out there on the subject. Robert Kiyosaki has a good book on the subject, called How to Find and Keep Good Tenants. If you haven’t heard of Bigger Pockets, it also has tons of good info on this issue. It seems like the best thing you can do for yourself is make sure you screen the heck out of your tenants. Check their credit, check their criminal background, talk with their former landlord’s. As long as you do your due diligence, you should be able to attract and keep good tenants. Some friends that I have that are landlords have said that the best thing they did was screen really well for their first few tenants. After that, their current tenants have referred future tenants and kept not only rental income coming in, but good quality tenants.

Collecting Rent. Hopefully this concern can be resolved by finding good tenants.  I really cringe at the though of having to hound on my tenants for rent. I have seen the eviction process get really nasty in court and I’d prefer to skip out on that if possible.

Taking on MORE debt.  It is hard to me to imagine having more debt than we have now. At the same time, we already have half a million in debt, whats an extra 100k. And, if tenants are actually paying that debt off (plus some extra) that is sure appealing as well. I have a really romantic view of being debt free, but perhaps I should narrow this view to being student loan free. I know there is certainly disagreement on the topic regarding whether there is good debt and whether there is bad debt. But if that debt lets us live “rent free” (since tenants will be covering our mortgage) for a few years, maybe its worth it?

What do YOU think? Are rental properties worth it when you already have debt?

4 Comments on “SHOULD YOU BUY A RENTAL INCOME PROPERTY WHEN YOU ARE IN DEBT?

  1. Go for it! I wish a lived in a low-cost area to be able to do this.

    I often hear this called “house hacking” and there is a lot of discussion on it on Bigger Pockets (which is a huge real estate community online)

    1. Thanks Brian! We LOVE BP. And thanks for the encouragement! There definitely seems to be two schools of thought on this subject haha. We are going for it!

  2. I LOVE this idea. My husband and I are currently living with my parents and my brother until our student loans are paid off. When we buy our own place, it would be awesome to do something like this. I’ve thought about buying a house and renting out some of the rooms, but I’m so tired of living with other people! I’ve never thought of renting out the other half of a duplex before. That’s a great idea. You can enjoy the benefits of it without actually having roommates. You can still keep your privacy and your personal space. It’s a win-win!

    1. Thats exactly our position! Super tired of living with other people, whether we love them or not! Hopefully the duplex is as good of a plan as we think it is! (ps- lots of people talking about doing stuff like this on biggerpockets.com if you haven’t ever checked them out)

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