My First Potential Residential Income Property
My realtor and I exchanged a few emails since this last post, today we went to look at our first set of properties. We viewed 4 single family homes in the northern Portland area. I have found my first potential investment property in that mix (the last one on this list of homes).
Option #1, Too Much Maintenance
The first home we saw was going for $389k, 3×1 bd/br. I was able to rule it out after viewing the other homes. It just would require too much maintenance because of the basement and attic. It didn’t have a backyard but it was in a really good neighborhood. I might visit it again later if needed.
The work done on the house wasn’t the best, looks like most things were patched up, some finishing work still needed to happen. I can handle that work but not sure if I want to.
Option #2, Needs Too Much Work
This home is located in a popular neighborhood in Portland, called Kenton. The asking price is $350k for this 3×1. It’s an easy walk to the popular downtown area and also close to public transportation, the MAX line in particular.
I don’t know where to start, there was a bedroom attached to the kitchen without a closet. The kitchen didn’t have a vent. The stairs were steep as shit and the single downstairs bathroom was also leading into the kitchen. No garage and a little backyard. The place is too much of a mess to consider.
Option #3, Spectacular Home But Too Small
This home was just gorgeous. It is being listed at $350k, a little over 1,000 sq-ft, 2×1. It is a beautiful craftsman. There is no garage but it has a cute backyard and a very nicely manicured front yard.
The location is great. Close to a major university and 2 blocks from restaurants, bars, and grocery stores.
It’s a bit overpriced. I think the owner probably invested a little too much, this place is just super lovely. But 1,000 sq-ft for $350k with only 1 bathroom – I don’t think that’ll cut it.
I could rent it for $1,500. There wouldn’t be much cashflow after paying for my overhead. The advantage would be that there is absolutely no maintenance with this place for the next 5-10 years.
Option #4, Winner
This house is located about 1 miles from the heart of St. Johns downtown. It’s a little too close to a high school, which is the only downside. As a potential investment property, it is definitely located in the right place.
It’s a 1,300 sq-ft, single-story, 4×2, listed for $350k. It doesn’t need much work to get it ready for rent. One of the bedrooms and bathrooms could easily be combined to create a master suite.
The kitchen is functional, just fine for a rental. I can do some work in there myself, however, to make it even more desirable. It would be ideal for a small family, especially with the nice sized backyard that it has.
Let’s Do The Math
I would come in with at least $60k down, that’s 20%. For a fixed 30-yr mortgage @ 4.2%, I would have the following monthly payments:
- $1,330 P&I
- $220 tax
- $50 insurance
Some of this can be written off on taxes, I’m still figuring that part out. But I would also have property maintenance costs and some rental loss in case of a vacancy. A total monthly carrying cost of $1,800 per month.
I could rent the place out for $1,800/month. It might rent as low as $1,600 and it might rent as high as $2,000, really depends on the market.
I also have the option of living there, renting out my current condo and getting 2 roommates who would each pay $700/month. That’s $1,400/month in my pocket, and my carrying costs would be lower because I would be living there.
Or, I could come in with a little more down, decreasing my payments by nearly $200/month. Doing so would allow me to live there, have the roommates and pretty much live for free. All the while, my condo would make me around $600/month of income.
Is the Timing Bad?
Yes, there is never a good time to start a business. I think of this property purchase as a business; With a little money down, I can generate income. I have to run it well in order to keep it profitable.
I’m sure a time will come when the Portland market will crash, or other market events will make it cheaper to purchase this home. I just don’t have any desire to time the market, I have the cash now and my cash has value, why not get in now?
Home prices are higher than they have ever been. This has also driven up rent. People are flocking to the Portland area, and the North Portland is still affordable enough for me to be able to get into.