Buy cheap little house for rental property?

marys1000July 31, 2009

How do you figure out whether this would be a little extra for retirement?

My scenario, I am living in a place I know I don't want to stay when I retire in 7 years (or maybe move from to a different job even sooner). So I am in an apt.

Down the road a small cheap house is for sale - not somewhere I'd want to live normally but I was thinking I could buy it, put in 10,000, live in it and when I move hire a property mgr and rent it out as a little extra for retirement.

Now I was just told that typically its not rent that's the benefit but tax write offs. I am single and currently don't have any.....I don't have retirement mapped, I may buy a place to live or RV full-time or a little of both - who knows what the future will hold.

My question is this place is 57,900, will tax write offs and/or rent be enough to give my retirement income a little boost? Or at that level, one small house minus property mgr fees, even worth it? How do I figure this?

It is close to an Air Force Base and a small college so theoretically there is a rental market - however there are also tons of rental properties, a new apt complex tgt students just opened with more under construction, and for houses especially now with people leaving and not being able to sell. I'm not sure its a nice enough house or school system for most military families even though its less than a mile from one gate. Maybe a single airman with a pet....

Anyway its the overall rental money picture as a good thing for retirement I'm trying to get a handle on right now.


Thank you for reporting this comment. Undo

We're retired, and we considered this too. And we live in a college town. But we decided against it.

Being a landlord involves risks. Crumby tenants who don't pay on time or at all, and who are then very hard to evict because the laws protect them. That's one problem. Then there's the risk of lawsuits. I read somewhere that if you're a landlord, you have to expect to get sued sooner or later. So you need to carry a lot of insurance to protect yourself from that risk. Finding a reliable property manager can also be a problem.

If the property you are considering is near a college or military base, you think you can easily get a tenant. Yes, but drawing from that population base is not likely to get you an ideal tenant -- these are people on the move; they are young and party a lot, and are more likely than average to damage your place.

You might go ahead and do it and, if you're lucky, you might find a nice tenant. But if things don't work out, it could cause you a lot of grief and in the end you may lose money.

    Bookmark   July 31, 2009 at 6:26PM
Thank you for reporting this comment. Undo

Hi Mary,
One thing to consider when looking at a house that cheap is the IRS Standard Deduction. The tax benefit of being an homeowner is that you can deduct interest and property taxes from your federal income tax. BUT - if you buy a house too cheap, the deductible interest and taxes will not be high enough to give you more than you get in the Standard Deduction, therefore, no benefit to you taxwise for owning the house. If it is not a place you would choose to live anyhow, there is NO benefit to having the house.

As for retirement time, I am not informed enough to give an opinion. I do know that renting out our old house - while both of us are still working - is costing us a lot of money in taxes. Even though the rent we receive is only a few hundred more than the mortgage and taxes, we pay a lot in federal taxes for the privelege of earning it. For us, it would just be cheaper to not own the house.

    Bookmark   August 1, 2009 at 6:14PM
Thank you for reporting this comment. Undo

Purchasing such a property for rental could be a nice move or it could be a night mare. First check the local regulations on rental property. Many areas especially those around colleges and military bases have very strict codes governing rental property. Many have very rigid structral standards that must be met before a rental permit can be obtained. Get the place inspected by a comptent home inspector. Next check out the rental regs in your area. If the place checks out and can be brought to code for a reasonable amount, it might be worth the investment. However, a word of warning, renting property is not simpy putting a sign in the yard a chosing a tenat and collecting the rent. The law is structured to protect dead beats and crummy tenants. If you decide to take the plunge make certain you locate a good attorney, because likely you will eventually need him. I have owned rental property and believe me the return is seldom worth the trouble. I was fortunate enough to dump mine, but good luck with whatever course you chose to follow. Iggie

    Bookmark   August 5, 2009 at 2:28AM
Thank you for reporting this comment. Undo

Rental properties can be a very good, but also a very bad investment. $58K sounds cheap for a house, but please consider all the costs to bring it up to rental condition, plus unexpected fees; then, you can calculate your ROI (Return on Investment/Equity).

My guess is that your ROE/ROI numbers will not justify the risk, the time, and the hassle of being a landlord when compared to a balanced investment approach (Stocks, bonds, REITs, emerging markets, overseas markets...)

    Bookmark   August 13, 2009 at 5:09PM
Thank you for reporting this comment. Undo

I was a landlady for 25+ years and I don't think it would be worth it. My husband never sold anything and that included homes that he bought. When we married he had a home and duplex and my home. That was a very good deal for us, because we had low mortgage payments, around $79. each. When I took over, I raised the rent, did all of the inside work myself and my husband did the outside labor, then helped me inside. It was very good income for us but we would never have had that kind of income if we went out today and bought "property to rent" and paid a management company to take care of it. You should have been buying a home instead of renting an apartment and you would have an equity. There is no easy way if you are near retirement unless you get a part time job and work.

    Bookmark   August 14, 2009 at 2:46PM
Thank you for reporting this comment. Undo

the deductible interest and taxes will not be high enough to give you more than you get in the Standard Deduction, therefore, no benefit to you taxwise for owning the house.

Interest and taxes and any other expenses are deductible as a business expense against the income. It is possible to have more expenses than income and the loss can be taken against your regular income.

    Bookmark   August 14, 2009 at 10:22PM
Thank you for reporting this comment. Undo

Interest and taxes and any other expenses are deductible as a business expense against the income. It is possible to have more expenses than income and the loss can be taken against your regular income.
I don't believe you can take investment loses against earned income. However, you may be able to carry them forward.

    Bookmark   August 17, 2009 at 10:08AM
Thank you for reporting this comment. Undo

It isn't easy to generate a net revenue stream from a rental property under the best of circumstances and is nearly impossible if you are using a property management company. If you want to be a landlord, you really need to be the landlord. If you have to pay someone else to manage the place, that often eats up whatever cash flow was available.

As a general rule, you cannot expect for someone to pay significantly more in rent than it costs to cover the mortgage, insurance, upkeep etc at first. The key to making money is to hold the place over time. If you have a fixed mortgage rate, you lock in most of your expenses at today's costs. Over time, rent rates tend to increase, so eventually you should have a positive cash flow. Sometime in the future, you will have the place paid off and then you can just continue to collect rent or sell it and cash out the equity.

Of course, all sorts of things can go wrong in the meantime. You can have major repairs. You can have deadbeat tenants. Your town can overbuild apartments and drive your rent down. Who knows what the future holds? If you are looking for a safe, no work way to make money, rental property isn't the way to go. If you are willing to manage the place and have enough other assets to weather the tough patches, then you may want to look into it further.

    Bookmark   August 17, 2009 at 1:59PM
Thank you for reporting this comment. Undo

Maybe I'm confused, but my understanding is that (1) the standard deduction has nothing to do with business expenses. That only becomes an issue when you are deducting the interest and taxes on your primary residence. Taxes and insurance on rental property is directly deducted from rental income and (2) business losses are deductible from earned income - they are earned income. Renting property isn't a passive sport. If I am wrong, could someone quote me chapter and verse from the IRS code.

    Bookmark   August 19, 2009 at 10:12AM
Thank you for reporting this comment. Undo

Sigh. I dream about owning rental property, too.

Ideally, a small house with 1-bedroom apartments in Philly, to provide some income when I retire. Or a condo in Wildwood NJ that could be rented seasonally.

But nobody ever has anything good to say about owning rental property, financially or otherwise.

Are there really NO success stories out there??

    Bookmark   August 19, 2009 at 6:12PM
Thank you for reporting this comment. Undo

I have two friends who have a small cottage on their property, which they rent. They live in the main house and the cottages are about 1/4 acre away. They both own 2 acres of land. These cottages are not legal but people in my area do this all the time. They collect good rent on these places and have been very lucky with their tenants. Both find single adults who are working nearby but live in another state. They generally stay a year or two.

One friend has been doing this for over 20 yrs and never had a problem. The other just started last year and loves her tenant.

So I guess there are happy stories.


    Bookmark   August 19, 2009 at 9:57PM
Thank you for reporting this comment. Undo

Since Mary intends to live in the home until retirement, the tax code for a primary residence does enter into this scenario.

    Bookmark   August 19, 2009 at 10:54PM
Thank you for reporting this comment. Undo

Ours was a success story, but we didn't buy property for rental. We just kept what we lived in. When we bought a better home we paid the minimum down and kept the old one. The rental is one of the reasons I can travel, own a new home and new car with no payments. The other reason is that I am very good with money management. I just wouldn't do it like OP wants to do it.

    Bookmark   August 20, 2009 at 5:11PM
Thank you for reporting this comment. Undo

The office manager where I work is getting rid of her rental home. The previous tenants (military BTW), ripped the toilet off the floor and smashed it causing major flood damage, took a sledgehammer to the kitchen and pretty much destroyed the whole thing, among other things. And this was a "good" tenant who paid the rent on time. She is glad to be getting rid of the house. It cost her $6000 to make repairs; could have been a lot worse.

    Bookmark   August 23, 2009 at 5:51PM
Thank you for reporting this comment. Undo

I am a happy landlord, I've never had damage from my tenants as described here.
But, you need to know your rental market, I make sure to buy in areas with high rental demand. The ones I manage myself are mostly young professionals, good income, but not ready for home ownership, the market is tight so they take care of the property and pay their rent on time and usually stay for several years.
My apartment buildings are managed professionally, with tight guidelines, there are more hassles but I don't deal with them personally.
Personally I don't buy single family homes for rentals, for me the numbers don't work. I buy at least two units at a time.

    Bookmark   August 24, 2009 at 11:11AM
Sign Up to comment
More Discussions
Home Loan advise? Remodel and Addition
I am looking into a renovation/remodel of my current...
Any advice for a lady whose husband hides $?
I am a widow and used to doing for myself. I have a...
I NEED to vent!
I am so UPSET Just received a notice from my credit...
Investing for your Future
I'm wondering if most people today hire financial planners...
How much to replace car key? Am I being taken for a ride?
Hi all. I lost a key and a remote control to our 2005...
Sponsored Products
Industry Ceiling Fan with Optional Light by Modern Fan Company
$360.00 | Lumens
Savoy House Coromell Transitional Chandelier Ceiling Fan
Hampton Bay Ceiling Fans Santa Cruz 52 in. Brushed Nickel Ceiling Fan with Red
Home Depot
Peri Bronze Two-Light Bath Fixture with Lime Glass
$238.50 | Bellacor
Campania International Mayfair Urn Planter - GRCP-010-AL
Bruck | Chroma Ledbay Pendant Light with Metal Shade
$356.25 | YLighting
Discovery Extension Table by Domitalia
$2,380.32 | Lumens
Black Iron Industrial Vintage Metal Edison Pendant Lighting for Loft,Dining Room
People viewed this after searching for:
© 2015 Houzz Inc. Houzz® The new way to design your home™