The purpose of owning a rental.
I read through the other rental thread with interest. Late to the thread, it's timely. I was kind of shocked by the discovery of stoves with one working burners and 20 year old rugs that needed replaced. Was this house managed by a company?
We had a meeting with our Financial Planner yesterday. We had two rental scenarios in hand that we needed help deciding which one to go for. Both in neighboring cities, hit especially hard by the economy, but showing strong signs of rebounding and impressive population growth. I even looked at the Development Plans and interviewed police.
The first option is a $145,000. home in the historical section of the city who is losing its business base but close enough to places to still be a viable place to live. Cute as could be, built in 1935 but not located in the best neighborhood. Three bedroom, across from a mostly decent school whose population included 80% lunch subsity. The numbers worked on that house. Easy profit right out the gate but little resale gain potential down the road but $600. A month profit for a small down payment was tempting. The house was solid as it qualified for an HOA loan last time it sold.
The second house we brought to the table is a four bedroom house about 6 miles away from the first, in its sister city. Located in the best area of town, the house is in a development of custom Ranch Houses built in the late 1960's. Every house is immaculate and the development is framed with giant 12,000 (+/-) Sq Ft Mansions. The home is 1902 sq foot, 4/2/2, immaculate, and in the most desireable school district around. (Better rated than our local schools) Listed at $279,000. I could see me living there with minor kitchen updates. We will be able to rent it out at only a small profit (after paying for a gardener, etc). This house has every amenity including sprinklers on timers, new HVAC and a new 50 year roof.
We were very confused about which house we should go after so we solicited advice from our local investment Guru. Initially, he thought the. $140,000. was a no brainer until he looked at our situation. We need a tax haven and long term investment rather than income. After looking at market trends and development plans for the area, we are making a bid on the more expensive house. That means we are investing in the belief that the economy in that area will bounce back so our profits will be in equity. Basically a higher earning savings account than our bank is offering.
In our particular town, $279,000 would buy us a home that wouldn't likely even qualify for a loan. An hour away, it will buy a first tier house flanked by mansions in a city ranked #3 for most affordable places in California to raise a family and whose population is on the rise.
Before we felt comfortable pulling the trigger on a rental, we had to define the purpose of purchasing one in the first place.
Why do you own rentals and what would be your goal of owning one?