Should I Buy A Rental Unit?

by Mary
(Michigan)

There's a rental unit nearby that is a duplex for $69,000.
The rents are $500 each, both are rented, and the building is in good repair.

After the mortgage payments, taxes and insurance, I could profit about $125 per month while building equity.
I already have a 401k and am thinking about diversifying with a rental property.

Any suggestions would be appreciated.

ANSWER:

A rental unit as an investment always "seem to look good" on paper!

The question is... Do you want to be a Landlord?

95% of the time, the answer to wanting to be a Landlord is NO.

Can you get a low fixed rate mortgage for your rental unit? I would advise against variable rate mortgages and try to get 30-year fixed financing.

Having a rental unit, unless it's your home, is entering into the Landlord "Business".

There are Laws to Consider, plus...

Rules and regulations,
Contracts,
Interviewing and qualifying tenants,
Tenant requests and complaints,
Neighbor complaint about your tenants,
Damage from tenants,
Tenant turnover,
City certification for rentals in some areas,
6 month inspections by you as a Landlord,
and the list goes on.

You could have a Management Company manage your rental for you.
There would be no profit in the case scenario you provided after paying rental management fees.

It doesn't sound like you're a current Landlord!

The profit margins you're showing are narrow.
Consider the additional overhead of the Landlord's responsibilities outlined above and recalculate your overall business expenses.

If you see a great appreciable value where you could sell that property in the near future, that's a different consideration.

If this is your first rental property, take additonal time to research the responsibilities of being a Landlord.
It is a Business!
Many have become wealthy being a real estate investor but, be prepared before you buy with a "business plan".

Do you able to do home improvements? Doing your own home remodeling repairs is very advantageous and will save you money!
There is plenty of DIY home remodeling tips on this site to help.

Rental units for additional income as part of your total investment portfolio is a good thing,
as long as you can maintain a positive cash flow.

Hope this helps,

Joe Trometer

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