Liz and I are incredibly close to buying our very first investment property (excited!!). It’s a foreclosed home and is in need of some repair, but with only $9,000 (or so) and a little elbow grease, we could have instant equity of about $20,000 in the home once it’s all fixed up! While it would be nice to put a quick $20k in our pockets, this actually isn’t the plan with this house. Ideally, we’d like to find a solid renter that’s willing (and able) to pay $1,000 a month for their stay. Since we’re paying for the property with cash, nearly all of the rent is pure profit.
The Original Plan(s)
Before Liz and I got pregnant like a couple of jackrabbits, the ORIGINAL plan was to:
- buy an investment property
- fix it up
- rent it out
- save up
- buy another investment house
- have a baby
Then the original plan turned into:
- whoa, we’re pregnant
- quick buy a rental property
- fix it up
- rent it out
- whoa, it’s May and it’s time to have the baby
Ideally, we wanted to own two rental properties by the time we had our first kiddo. But, as we all know, plans are warm and fuzzy, but rarely happen as you draw them up. And truthfully, Liz and I are okay with that. We just need to adjust our plan slightly.
Just recently we decided that we had enough money to fund this first investment property, but wouldn’t be able to save up enough to fund the second before the baby comes. With the new baby expenses, it would take us approximately two years to fund the next project. I was okay with this until just the other day…
Our next door neighbor is an elderly, 92 year-old lady. Since it’s pretty inevitable that she’ll passing away in the next few years (it’s sad yes, but still inevitable), Liz and I were thinking, “Wouldn’t it be nice if we could buy the house next door as a rental, move out into the country, and then rent out our current residence as well?” It sure would be pretty slick to own and rent out two houses that were right next to each other (in addition to the one we’re closing on – so 3 houses total).
As it turns out, this is actually playing out exactly as we thought it might. The only problem is, it’s happening too soon! The elderly woman is nearing the pearly gates and Liz and I don’t have the cash to buy the house (and we really hate debt) since we’ve already committed to purchasing the house up the street.
The Options As I See Them
It would be awesome to own our house, the house next door, and the house that’s about 6 blocks away, but the timing just isn’t quite right. In order to make this a reality, here are the options as I see them. I’d really love to hear your opinion about what you think we should do in the comments below.
1) Take out a loan for the house next door
This really pains me to say it, but I would like to own the house next door so badly that I might even consider taking out a short-term loan to do it! At this point, we own our $125,000 residence and the $80,000 rental house, so we would have plenty of equity to cover the $50k loan that we’d probably need to buy the house next door. And, with the help of the rental income (from two properties), we could probably pay this back within a year and a half.
2) Get crazy and try to save up the cash in time
There’s no crystal ball that will tell us when the elderly woman will pass away and the house will come onto the market. It could be tomorrow or it could be another year from now. Who knows. In the meantime, we could just save up as much cash as possible and hope to have enough by the time it became available.
To earn extra money, we could work our butts off to get the rental on the market as fast as possible. I could do extra work on this website to try to earn more. And Liz could maybe make crafts or do some photography work. As you know, I can get pretty crazy if I have a goal in front of me.
3) Try to flip the house that we’re buying now
If we decide that it would be better to own the house next door than the one up the street, we could quick fix up the house up the street in an effort to flip it, then easily buy the house next door with cash (the house next door would probably be $75,000 or less) and still have plenty left over.
4) Forget about the house next door
Finally, we could just focus on the rental house that we’re under contract with now, rent that out and enjoy the income. If the house next door hits the market, we could always just let someone else buy it and move it. It probably wouldn’t be the end of the world for us.
So what do you think we should do? Please leave a comment below with your reasoning!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.