The real estate bubble has burst. That sucks right? actually it’s the best thing that could have happened. Man – you’re a mean bastard – some would say to me: what about all these people affected by foreclosures? My answer to that is: they had it coming. If you make $60,000 / yr (a decent amount) than what on earth compels you to live in a $700,000 home with an SUV that gulps gas like there is no tomorrow (and in most cases looks ugly to begin with?) – you fed your ego, you wanted to be the same (or better) than your neighbors, you enjoyed it – now you pay with your own home. You played – you lost.
But let’s say that you have learned from your mistakes, you are back on track – or if you’re lucky, you have not made those mistakes, you have some cash on hand and are willing to risk a little bit to profit in the long run by buying some real estate (yes, you are also risking by investing in real estate – no investment is risk free – as the world has clearly seen). What do you do?
First – you make sure that you do not bet your farm. If you have $60,000 in your bank account – don’t be investing in a $600,000 home. If you have a decent job (making $85,000+) and a decent credit rating you probably would get the credit for it – but than so what? Why are you buying an investment property for that much? You should be looking for properties which cost around $165,000 – $180,000 which can be converted into 2 floor living spaces (or even better, which already are converted to that). What I mean is that you should be looking for a bungalow (for example) with a basement that can be converted into a separate living space from the upstairs. That way, you rent it to 2 tenants instead of one.
Why 2 tenants? because one will pay you $1,000 / month rent for a full house while 2 will pay you $500 for the basement and $750 for the living space upstairs – that’s $1,250 / month. But is that even profitable? I would say that if you are looking into purchasing a property, the total amount of money you make after all the fees / expenses are paid should be within 8% – 10% of your initial investment – by that I mean down-payment for the house you are buying. Let’s talk examples – here is the starting data:
- House type: bungalow
- Renters: 2
- House price: $185,000
- Down-payment: $37,000
Based on the above, if your yearly positive cash flow from the property is within the range of $2,960 and $3,700 (i.e. $246 – $308 per month) than you should consider yourself “in the game”. On a side note, finding a property to buy for investment purposes requires time. But look everywhere as there are always undiscovered gems.