Tenants can be a nightmare. They need to be carefully screened before accepting them. It is not that unusual for properties to be totally destroyed and trashed by non-paying occupants. There are legal requirements to follow when screening applicants. People who cannot afford to buy are often not prime citizens. Heed the advice above and seek more before taking the plunge.
I would never own an apartment building for the same reason I'd never own a duplex.
They get to fighting each other the both move out.
I don't know the location of or value of the property but a good rule of thumb is.
subtract any utilities from rent then multiply rent x 12 x 7 = purchase price. This is a good investment.
rent x 12 x 10 = fair-poor investment
example $650 x 12 =$7800 x 7 = $54,600 purchase
on this example payment Principle, interest 5% commercial, taxes, insurance = $500 per month netting you 150 per month
example $650 x 12 = $7800 x 10 = $78,000 purchase
this example prin,int 5% commercial,tax,ins,=$700 netting you a loss of $50 per month leaving a hole in your wallet and nothing for repairs.
It doesn't have a pool does it? Makes insurance go up and lots of repair costs.
Must be awful fancy upscale apartments for $800+ a month
I'm renting out 3 bedroom houses in decent neighborhoods for $650-800 a month
But then maybe I'm too cheap as my average tenant has been there 8-10 years
They get to fighting each other the both move out.
I don't know the location of or value of the property but a good rule of thumb is.
subtract any utilities from rent then multiply rent x 12 x 7 = purchase price. This is a good investment.
rent x 12 x 10 = fair-poor investment
example $650 x 12 =$7800 x 7 = $54,600 purchase
on this example payment Principle, interest 5% commercial, taxes, insurance = $500 per month netting you 150 per month
example $650 x 12 = $7800 x 10 = $78,000 purchase
this example prin,int 5% commercial,tax,ins,=$700 netting you a loss of $50 per month leaving a hole in your wallet and nothing for repairs.
It doesn't have a pool does it? Makes insurance go up and lots of repair costs.
Must be awful fancy upscale apartments for $800+ a month
I'm renting out 3 bedroom houses in decent neighborhoods for $650-800 a month
But then maybe I'm too cheap as my average tenant has been there 8-10 years
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If you are able to get financing (and I think you can easily with that down payment) it might be worth doing. As for me, I want to get the hell out of the city and I'd be sorely tempted to go buy some land with that 165, then save some more and build on it or just throw a trailer on it and rebuild my savings since you are basically rent/mortgage free. But this might be up your alley and it might be a way to facilitate expanding into more properties in a few years too. All depends on what you want to do. One thing is sure, rent ain't gonna be getting cheaper, get a good stable set of tenants and you have gravy. The trick is landing the right ones.
A few flyers around the OU medical complex would probably keep it rented. OU might even lease a couple for corporate purposes if you could get the attention of the right contact.
Having only one rental, if I had 165k saved up, I would just go purchase a house outright and live debt free. Then there's the thinking that mortgage interest is so low now, you could put down 20% and finance the rest for around 3% and invest the rest. My 401K has averaged close to 14 to 18 percent return the last 5 years.
wrong answer if you are age 25 like OP .. he is just getting started and should keep ALL possible cash reserves. use absolutely the minimum amount of capital necessary to get into property. again .. stay away from small apartments .. go buy 5 house instead .. you will thank me later.
so far no one has even remotely suggested the best possible use of hard won capital.
think long haul .. rental conditions can and will change .. just so happens in OKC and Tulsa, residential rentals due to almost no new units coming into marketplace for years and years, combined with record property defaults (new renters) has driven vacancy ratios close to zero. only recently has new construction started and it's slowly hitting the marketplace.
there's been times where we've had up to 50% vacancy .. believe me it's not fun covering a huge nut every month when half your units are empty. over the long haul .. it does NOT always go exactly to plan. when you run out of cash to cover bills .. game over!
on the positive side .. if you do things responsibly .. you will eventually pay off all your properties and become debt free with a nice income stream .. retire at say age 45 if you desire.
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Putting 20% down on a property is not the wrong answer, unless you plan on throwing away money every month for PMI. And good luck finding a lender who will loan on an investment property without at least 20% down. You might be able to find one, but the rates aren't going to be ideal. If you know of one in the Tulsa area, please let me know, because my brother has bought 7 houses in the past 2 years and he has to put a min of 20% to get any type of financing.
And depending on your job type and long term stability, there is nothing wrong with having a home debt free and funneling money into investment accounts while you are still earning good wages.
In the end, it all comes down to the individual person as to what's best for them. Living in a home and being debt free brings a certain level of freedom as does having a mortgage but also having liquid cash avail if needed.
never said putting down 20% is the wrong answer .. you suggested paying cash for a house outright. which depending on someone's situation would be a good thing to do. but not if someone is age 25 and apparently on the right track to making a commitment to own investment property(s).
it's not exactly a secret if property is owner occupied that you can get in for 5% or less down payment especially for a first time homeowner. one of the best tactic (when you are still single?) is to purchase a property as your primary residence, then move in, do improvements. then purchase another property as your primary residence, move in and repeat. lender could put restrictions that homeowner must reside on property for x years. which is OK as this process should be methodical as someone builds up their asset base slowly. everyone is different but usually it's better to not be in a hurry. making one high stakes mistake can take you out and/or cost you dearly.
above is perfectly legal, especially if borrower has large cash balance that reduces chance of default to lender close to zero. more likely is lender will sell note to a secondary market.
an option not open to most is to use that hard won cash to purchase an investment property outright, improve property. then borrow against a paid off property to get your cash back out to restore capital to original strength. then repeat ... keep in mind above is only for someone that has made the decision that real estate is one of the best/safest investment anywhere. nothing is fool proof .. LOTS of stuff can and do go wrong. preserving your cash/capital is one of the best ways to survive when things go wrong.
there's other tactics that are not apparent that no one has even remotely touched yet. owning investment properties is NOT for everyone. most folks have trouble just buying a car without going upside-down and their home will be the single largest purchase in their lifetime. in no way shape of form am I saying that path is wrong. just that owning investment properties does take a different mindset.
it can be huge PITA to manage properties or smooth going. bottom line is if done right has huge rewards!
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I will have to ask my brother, but I highly doubt a lender is going to go 5% on an apartment building. I'm sure that would work for a duplex because the risk of depreciation and empty unit rental loss would be less in a two unit duplex when comparing to a 5 unit apartment building.
But the main point in putting 20% down is to avoid the cost of PMI on the loan. That will run you close to 135.00 a month in wasted money every month that could be used to add to an investment portfolio.
Different strokes for different folks.
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