Researching Areas to Invest in Rental Properties

I still have not acquired any rental properties and frankly I am still running into the issues I discussed at the end of my last post over a year ago. My local area is not priced appropriately for rental investment from what I can see; the rents that can be collected don't surpass the mortgage payments enough to leave a decent profit and any mishaps or repairs could push the monthly expenses well beyond what I would be collecting in terms of rent. The only areas where the numbers potentially work are dangerous crime-ridden areas that I would not want to invest in.

So, the next step has been to look into other areas to invest in. First I tried areas within a somewhat reasonable driving distance. I started with anywhere within a 2 hour drive of my home neighborhood. I would prefer closer, but if I had to it would be worth it to drive a few hours when I need to go to a property in person. Ideally once I get a property ready and rented out and the tenants settle in, I shouldn't need to constantly be driving out there. However, even with this large radius I am still having trouble finding anything with workable numbers in a reasonable safe neighborhood.

I am still trying to find something within that radius but I have also begun to consider more remote investing. The added complication is that if I go beyond a reasonable driving distance, I would need to rely on someone else (a property manager or property management firm) to handle tenant selection and any issues that arise with the property. Property managers also take a fee from the rent collected; the percentage varies depending on the area you invest in and the typical rents in the area. After I have explored this option further I will write up a post about it and discuss it in greater detail.

Considering a buy and hold strategy of owning rentals

I am currently thinking about buy and hold, or acquiring property and renting it out. There is some money to be made by collecting more rent than it takes to pay your expenses, but the real money comes from the expected long-term appreciation and the slow and steady increase of your equity in the property. If you were able to acquire a property with a mortgage and just keep it rented for the life of the loan, you would effectively have earned whatever the value of the property is, passively, even without making any profit on the rent. Initially, to acquire a property, I would need about 25% of the purchase price to put down in order to secure an investment loan. Since I will not be living in the property, FHA and other low down-payment programs really won't be an option for me on this deal. Once I purchase and rent out a property, I would begin to save for my next down payment, and in 1-2 years I could potentially have a down payment ready to acquire a second property.

Also, several years from now when I have multiple properties, I could potentially tap the equity of my oldest properties to help me come up with a down payment faster so I can exponentially increase the rate at which I acquire rentals. In other words, after I have had a property rented for several years, it will have built up equity because the tenants paying rent are slowly paying off my mortgage. I can then borrow money against that equity and use it as cash to secure other properties. If I am able to make the numbers work with 15-year loans instead of 30-year loans, this will be even more effective as my equity will be building up much quicker and less of the monthly payments will be going toward interest which ultimately lines the bank's pockets but not mine!

After I acquire a number of properties, I essentially have my future income and ultimately retirement secured. Once the mortgages are paid off, all that rent money becomes my income instead of my mortgage payments, less expenses such as repairs and occasional vacancies of course.

The major downside to this strategy is that the area where I live does not tend to provide a great ratio as far as purchase price vs rent prices and expenses. Also, frankly the prices around my areas (Queens and Long Island) are very high and I do not have enough capital to put down 25% on a property except those that are ready to be condemned, or located in war zones. So I may need to either save more money before I can get started, or look for other areas nearby where the numbers are more favorable for a landlord.

Welcome Real Estate Investing Newbies!

Welcome to my blog! Hopefully, like me, you are just beginning your real estate investment efforts, and we can learn and grow together. I have been wanting to invest in real estate since I was a teenager, but a combination of misinformation, fear, doubt, and lack of start-up capital has held me back. Well, no more! Today begins a journey; I will learn everything I need to know and do whatever it takes to succeed in real estate investment. Right now the market is down, which means it is a buyer's market. So it's time to get out there and get some deals going! I will post here as I learn new things that I believe would be valuable to other newbies, and update you on my progress, including my successes and failures, as I take each step in the long path to being a successful real estate investor.