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Another House Opportunity? Really? What Should We Do?

FrontLiz 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:

  1. buy an investment property
  2. fix it up
  3. rent it out
  4. save up
  5. buy another investment house
  6. have a baby

Then the original plan turned into:

  1. whoa, we’re pregnant
  2. quick buy a rental property
  3. fix it up
  4. rent it out
  5. 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…

20151011 - rental homeHouse #2

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!ย 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!

Money Rental Property

AUTHOR Derek

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.

22 Comments

  1. My opinion is to fix and flip the home down the street ASAP.
    Are homes selling quickly in your area?
    You’d be very happy to buy the home next door in the long one which is beside your home you are living in now–less travel you’d just have to pop over to fix problems if there are any.
    Congrats on the new baby.

    • Thanks for the opinion Lynda! Homes were selling extremely fast this summer, but have just now started to slow as winter is upon us. It would be extremely nice to rent out the home right next to us. Oh, and thanks for the congrats on the baby! Liz is 15 weeks now and feeling much better. ๐Ÿ™‚

  2. i would start off with trying to save up the money in time. Since the timeframe is unknown, you may be able to do it. In the event that you haven’t saved up enough, get a loan as suggested in option 1.

    • Makes sense ShaLynn. Since our expenses are very low, we can typically save up $4,000 or more a month so it adds up really fast. It might be a bit slower though since we need to fix up the rental we’re closing on soon.

  3. Since the house next door is not yet available I would suggest putting that out of your mind for now and concentrate on the other property. You really don’t know for sure what will happen in the future with that. It is difficult for me to comment on whether you should flip or rent. What is your neighborhood like? Are there are a lot of other rentals? Are you in a good school system? Have you checked other home sales to see what the market is like? Flipping a home requires a lot of work up-front where as a rental may require a much longer time commitment. Sure it would be great to get the perfect tenants but are you prepared for the worst-case scenario? Just my thoughts.

    • Great point Suzie. It probably is best to put it out of our mind for now. For the house we’re closing on: the neighborhood is decent, there are a few quadplexes across the street, so yes, other renters, the school nearby is fantastic, and homes typically sell for $110,000 or more in that area.

      We would love to have the perfect tenants, but we are prepared for the worst case scenario (financially anyway). Mentally, I don’t really think we know what to expect as a worst-case scenario. We’ll just have to find out from experience!

  4. If it were me I would strive for option number two. You never know when the house next door will go one the market and I think you will probably have enough time to at least save a chunk of change to put towards the house. Stick to your original plan of buying houses, holding on to them, and renting them out. Your goal all along was to buy and hold, not to flip. Fix up the rental you are buying ASAP and start collecting rent. Take the profit that generates and combine it with your monthly savings. Worst case scenario you have a good chunk saved and then you take out a small loan to buy the house next door. You will knock out that mortgage quickly as you have proved to do so in the past. Keep sticking to your dream of passive income.

    • Thanks for the dose of cold water in my face, Julie. ๐Ÿ˜‰ We really need to stick to our plan of buying and holding and gaining a passive income over time. We’ll continue to pinch our pennies and save while fixing up and renting out the house we’re closing on. Thanks again!

  5. Hi Derek, Please go with option two. You can do it. Keep all three houses. Best of luck to you. How I wish house prices were this decent in British Columia.

    • Wouldn’t the just be awesome if we could own three houses free and clear of any loans? All we have to do is rent out this current property and save our pennies for the next year or so. Then, we’ll probably start saving up for our dream house in the country! ๐Ÿ™‚ And then, we’ll get back into the rental game again of course.

  6. You two are going to make it either way. Take the path with the least amount of stress.

    Having a baby is wonderful. Yet, it is also stressful.

    You two are newly weds, don’t make life so strained that it isn’t fun anymore.

    I like the idea of moving to the country. ๐Ÿ™‚

    • Great comment, Joy. I actually asked Liz if we should even be going for this first house. But, she basically said, “Why not now? Life will only get harder in the future.” She’s definitely right, but we need to be sure to mix some fun in there too.

  7. Watch the capital gains tax if you should do the flip. Profit may not be what you think.

    I would get a personal line of credit, or better yet, a home equity line of credit, now. Just in case. Save like crazy for the house next door. If you don’t have all the cash lined up for the sale, you could use the home equity line that is already in place so that to the sellers it will still look like an “all cash” purchase and you don’t have to wait for a mortgage which could take months.

    If you don’t need the HELOC, just let it sit. Ours was no cost.

    Also, if you have never had rental property before, I want to pass along a tip that was passed to me which worked very well: When you spell out your late fees in the lease, add an “early payment discount”, say $25, if the payment is made before the 1st of the month. You would be surprised how folks will do anything to save a buck! (And saves you the hassle of late payments!)

    • Great tips, Dottie! I really like the idea of offering a discount for an early payment too!

  8. I have a feeling my advice is something you don’t want to hear, but since you asked, I can sum it up in one word. Don’t. I’ve had rental properties and for every one tenant who is a dream, pays on time, doesn’t demand stuff, doesn’t tear up the property, you will always end up with two who doesn’t do any of that stuff. Being a landlord is much more than just collecting rent and unless you are handy and able to do repairs or maintenance yourself, it can be very expensive to hire it done. Everyone has their own tolerance level but for me, I’ll stick with the stock/bond market so I can sleep at night. Yes, I did just say that 3 days after the market closed down 500 points for the last week.

    • Ha, well I appreciate your input Kathy. It’s good to hear the other side of it once in a while – it will get me prepared for what’s to come. I am pretty handy and can fix many of the issues myself, so that should help a lot. More stories to come I’m sure!

  9. Owning 3 homes is the best option ;-). I personally think you should stick to plan 2 or plan 1 if plan 2 is not an option. I would chuck out plan 3 and plan 4. I noticed you haven’t mentioned any maintenance cost and property taxes on these homes. I hope you still make good profit after taking care of these costs.

    • Hi GK. Thanks for the comment. I agree. Option 2 takes precedence over all the others. If that doesn’t work, then I may consider option 1. As for property taxes and maintenance, I definitely factored these in. They take down the profits a bit, but the overall earnings are still definitely worth it.

  10. I would err towards option four. Not because it’s not a great deal, but because great deals in real estate happen all the time. You can find another wonderful property when you have the cash, and when you have the time to invest in it. Slow down for just a few months, and another great opportunity will come up.

    When you have a pile of cash, opportunities have a way of knocking on your door. We’ve deliberately not purchased three houses recently. All around $30K, requiring $30K in renovations and renting for $950/mo. Did we miss out on some great opportunities…not for us.

    • Thanks Hannah. I think I needed this. Riches aren’t created overnight, and I probably just need to take one step at a time on what we’ve got. We need to close on the house, start cranking out the work on it, and then rent it out successfully. Then we’ll start building up cash again…and probably have a baby. ๐Ÿ˜‰

  11. I have a bad feeling about the “next door” part. Too easy for the renters to popover for minor problems they should take care of themselves. And if you get a bad tenant, it could happen, you’ll think about them every day you go home.

    • Very true, John. Thankfully, the house next door has not yet gone up for sale (and hopefully won’t for another year or two), so I’m just putting it out of my mind for now. If it came up for sale soon before we were considering moving out of ours, then I would be ecstatic because we could rent out our current residence and the house next door and we’d never have to live right next to the renters!


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