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Recent Grad Income Property?

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Mikehal2k
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Recent Grad Income Property?  Reply with quote  

Hi all!

So I am a recent college grad (May 2015) living in the south shore outer Boston area. I am trying to decide the best plan for an income property. So here is a little background:

- I have 28k in student loans which I have saved enough to pay it off in a lump sum by Oct 31, 2015 (when the grace period ends)

- I currently hold a management position at a large corporation with a starting salary of 60k plus bonus.

- I am extremely smart with money and can stick to a set budget.

- My credit score is over 800

- My Father who I currently live with is a property manager who would help me with handy work/renovations if necessary.

My goal for years has been to invest in property on the side like much of my family has. I would like to buy a two family home and rent one half and live in the other half, for relatively cheap, (maybe with a friend who pays rent also) while I save to possibly buy another.

The area I am looking at has 2 family homes for sale averaging in the mid 300k range, the rent in the area for two families seems to range from $1,300 - $1,600. The neighborhoods I am looking at are walking distance to town center (bars, restaurants, groceries etc.) and the commuter rail to Boston is also close.

My question is whether or not I should pay off all my loans in a lump sum and then start over and save again for about a year and a half to have a 10% down payment on a mid 300k two family house? Or is it smart to make the monthly payments on my student loans, and hold on to that money while I save for another 2 months (until I have the 10% down payment) so I can buy a two family and get started sooner?

I appreciate the help. I'd love to hear from other property investors also.
Post Mon Jul 06, 2015 8:16 pm
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oldguy
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quote:
I have 28k in student loans which I have saved enough to pay it off in a lump sum by Oct 31, 2015 (when the grace period ends)


I would retain the use of that capital unless it's expensive (>6%). Here's why. I'm a landlord, 4 SFHs, 35 years. I continually refi them whenever they grow equity - and invest the equity elsewhere. A $28k lump, invested at 11%/yr = $641,000 in 30 yrs. And if your $28k costs 6% and you repay over a 20 yr period, your cost is $48,144, ie you pay $20,000 to rent that money for 20 yrs - a pretty good deal if you earn >$600,000with that capital.

quote:
I would like to buy a two family home and rent one half and live in the other half, for relatively cheap, (maybe with a friend who pays rent also)


The first rule of landlording - "never rent to an acquaintance, a co-worker, a friend, and never ever to a relative, you need an arm's length formal agreement with a stranger." And I avoid buying houses that are close to my home - your tenants don't want to see their landlord on a daily basis, and you don't want to become close friends to them - that's how you get all the "favor requests" - I don't have the rent, can I pay half? - Or, can I mow the grass for the rent? Or, If you buy the paint I'll paint it. I'd rather have two small SFHs instead of a duplex, if the sq footage is the same the cost is only about 25% more - and SFH's sell better when you sell.

I like to buy in 2 to 8 year old neighborhoods - the first owner has planted the grass and hung the drapes, all I need is the key. And I have near-new roof, water heater, AC, furnace, appliances, modern code plumbing, code electrical service, etc. Almost no maintenance for the first 5 to 10 yrs. The 3bd2ba, about 1200 sq ft houses seem to work well for young families who need to rent 2 or 3 yrs cuz they need the job mobility, want to save for their own house - and the rent is affordable.
Post Mon Jul 06, 2015 9:51 pm
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Mikehal2k
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Thank you for all the advice, so are you saying to invest the capital in a property? Or in some other endeavor?
Post Mon Jul 06, 2015 11:46 pm
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oldguy
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Both. Equities historically have a longterm average return of 11%/yr. Real estate historically returns about 6%/yr, but it has the advantage of leverage. US stocks along with Real Estate make a very good diversified portfolio. Some yrs, one makes money, some yrs both make money. Seldom do both lose money.

One method would be to buy a small house, 1200 ft, in the $200k range with $20k down. Let it grow to about $250k, refi, and take out about $50k. Use the $50k to make DPs on 2 more $250k houses.

Wait a few more yrs until they are $300k each, then refi all 3 houses, take out $150k of eqiuity. Use the $150k for seed-money to invest in the SP500 Index Fund (@ 11%/yr).
Let the $150k grow to $3,300,000 in 30 yrs.

Keep the 3 rental houses, at 6%/yr, the $900k of RE would grow to $5,200,000 in 30 years. And the loans would be paid for.
Post Tue Jul 07, 2015 12:50 am
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littleroc02us
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I'm also a landlord/owner of a duplex in SE Minneapolis. I am of the opinion that you should pay off your student loans immediately. The reason being is low risk and it gives you back your income, because your not making payments. Your young, so stock market investing can wait a few years.
Don't let anyone fool you. Rental properties are a wonderful investment becuase someone else is paying your mortgage and also because if you do it right they cash flow. The down side is they can be very expensive to maintain. So if your heavily leveraged and things don't go well and you don't have investments such as Old Guy does to get him out of emergencies, your gonna be screwed when suddenly you need a new roof and the plumbing is backing up and it's gonna costs 15k to repair.
The duplex I bought required 25% down due to Fannie Mae/Freddie Mack lending rules for conventional loans. So if I were you I'd save that amount up. IMO you have mentioned a owner occupy duplex, which is a nice idea, but IMO 300k is an awful alot to pay for a duplex when your only getting $1,300 a month, which means your coming to the table with money for the mortgage. I use the 1% method in Minneapolis in a B rated neigborhood that caters to Milleniums, where they tend to want to live next to trendy areas, live close to transit and walk or bike wherever they go. So for every 100k you should receive $1,000 total rent. This also considers you put 25% DP. Also, if your not handy I wouldn't even consider, because your going to spend a fortune hiring the work out or a management company. For my duplex I bought it for 179k and I rent the lower unit out for $1195 and the upper for $800. Far above my rule of 1% and I cash flow around $800 after mortgage, interest, taxes, insurance, water, maintenance,etc....

So be realistic whether or not you can truly afford to take care of the problems that come up with rental property or your gonna get burned.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Wed Jul 08, 2015 7:50 pm
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PaulLyons
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Property Management is all about achieving maximum return on investment and minimized vacancy. We just need to get complete information about the property before investing in it . The Bridge Cambodia

Last edited by PaulLyons on Sat Sep 05, 2015 5:02 am; edited 2 times in total
Post Thu Sep 03, 2015 3:55 pm
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oldguy
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Paul - are you just copying other people's posts and pasting them elsewhere? What's going on??
Post Thu Sep 03, 2015 5:52 pm
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PaulLyons
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oldboy i am not copying others just want to discuss their points.
Post Sat Sep 05, 2015 5:03 am
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PaydayLoansNoCredit
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If you are able to purchase a home, I always recommend doing so if you are then able to rent it out, and use that rent to pay towards the mortgage. This way you will almost be living rent free, while increasing the equity in your home!
Post Tue Sep 15, 2015 10:29 pm
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