When To Get Into A Rental

Mark thinks he's ready to get into buying rental property. Does Dave think the same?

QUESTION: Mark and his wife want to buy a rental property. They have a $100,000 house that’s paid for, about $8,000 in savings and $12,000 in retirement. They bring home $6,000 a month and have several thousand in car debt. Should he buy now?

ANSWER: You need to be out of debt. Get the car debt paid off and have some cash. I would say pay cash for the rental house, but at the very least be debt free and have a full emergency fund. I’ve owned hundreds of properties in my life, and rental properties produce less than you think they’re going to, especially when you’re new at it. The people in the real estate business who stay in the business are the ones in a strong financial position. You’re right on the edge, with big car payments and little cash.

Take your income and concentrate on clearing out the debts. Put all your money in the car debt until you get them paid off. At a minimum, put a huge down payment to the rental and let it finance itself. Don’t risk your home for buying rental property. Be the tortoise; go slow and steady.