Expert: Dick Dennis - 6/26/2006

Question
My husband and I have been considering buying rental property for investment. We want to buy a home, rent the property to HUD-funded section 8 or other renters and make a profit.

My questions are:
We own a home currently...do we need excellent credit to start in the area of investment property or will the fact that we have 6 years of on-time payments on our current mortgage help us?

Is it possible to buy investment property will little to no money down?

Is there a certain percentage (under-value) that we should be seeking a investment house? If so, what is that percentage?

Where should we start to look for buying rental properties at a good price?


Answer
You ask a very deep question, Monica, that requires a very extensive reply. However, I do not have the time to write out what would ultimately turn out to be a book. So, I will touch on it lightly here.

First of all, you should drive around the neighborhoods in which you would like to own rentals and get used to the prices at what conditions. At this point you will start to realize that owning a section 8 property is not going to be in an area you may care for.

But since you are new to the game, you should keep on looking (who said this was going to be easy?) in areas you can afford. Now that we are having a buyer's market, you should be able to find a property AT YOUR PRICE, or close to it. But you need to know how much down payment you would need for any particular property. The lower the price for the property you are buying the lower the amount of down payment will be necessary.

The idea of owning income property is to have the best leverage you can get. The ultimate, naturally, would be a no-down situation and the seller carrying the mortgage at a very reasonable interest rate, and the rent you receive from the tenant would give you enough to pay the mortgage, taxes, repairs, maintenance, etc. and still be able to put some funds into your savings account. Unfortunately, so many people really take money OUT of their savings accounts each month to SUPPORT the income property.

When that happens the property becomes an ALLIGATOR. It eats your financial assets. It does not feed it. So, it is going to be very hard to find the property that will satisfy your requirements as a property owner.

One last thing. ALWAYS consider owning an income property as you being in business. It is going to occupy a lot of your time just like a regular business.

Then later on when it is time to either sell this income property, you don't sell, but you make a tax deferred exchange. Now your portfolio has started to grow. You will hire a CPA to make sure you are doing it according to how the IRS requires.

I do wish you well, Monica.

Dick Dennis            dixiedee13@aol.com
www.oldproblemsolver.com