(Sorry in advance for the long post!) For those of you that don't know my background, I am 24 and live in Chicago. I currently do the "9 to 5" but eventually want to break away from the cube walls. I don't mind doing work or chores, but I can't fathom sitting behind a cube until I'm 60+. It sucks the life out of me. I think becoming a landlord would be a good thing to do on the side, and I could maybe see myself doing it full time someday.
I think becoming a landlord (esp. in popular Chicago neighborhoods) would be a good financial opportunity for me. I don't like to drop numbers, but my post is meaningless without doing so. So I will drop numbers only so I can gain your feedback.
I make about $55k a year ($60-65k after bonus). I have a net worth of about $310,000 with about $45,000 of that being in roth IRA/roth 401Ks.
I am intrigued to become a landlord because of the great cash flow potentials. I currently live in a high rise apartment managed by a PM company, but previously I had lived in a two-flat. I researched how much my landlord paid, and calculated that she made nice monthly cash flow off of us after all expenses.
I am not afraid to take the risk, but here are my concerns. I would appreciate any firsthand feedback from real estate investors, or anyone in general.
1. Most 2 or 3 flats in good Chicago neighborhoods run north of $400-500K (probably closer to $700k+). Would you advise creating a ceiling on my purchase price (assuming financing isn't an issue - read below..) so I don't have all of my assets tied up? Assuming a price of $700K, I would be looking at tying up $140K assets (assuming 20% down). This would leave me with roughly $110K in non-retirement accounts.
2. Would I even be approved for an investment property loan in the ballpark of 400k+? I have spoken briefly with mortgage bankers, and they noted that the banks will often count the yearly rental income (per the leases) on top of your W2 income. If this is the case, I am thinking I might be, but still unsure??
I have read instances of banks allowing less money down if you allow them to place a lien on your brokerage account until you reach a certain equity threshold ownership in your property. I'm not sure if banks do this anymore, but this could save me some headaches.
3. I am not handy at all. I can paint but I am not good at repairs or putting things together. I am not from Chicago originally, so finding referrals for good, trustworthy repair people might be challenging. Most (if not all) Chicago two/three flats are old. I would be worried about getting a quality inspection and possibly finding a major repair(s) that need to be done shortly after closing.
4. I do not have a car. Living in Chicago, I have been able to ditch my car to save money since I take public transit. If I were to become a landlord, I would probably have to buy a car to be able to travel easily to my property/properties to make repairs (assuming I am able to do so....!).
5. I currently rent. I don't own my own place, so If I were to buy, I would be buying an investment property before I even have my own roof over my head. I've contemplated over and over again.....and decided that I do not desire to own a condo. Therefore in the city this leaves me with a single family home or a two/three flat. I could live in one of the units and rent the other out. I'm not sure if I would want to do this (to be around my tenants all the time), so I may still rent at a close by apartment building.
Anything else I am not thinking of. Tax/legal implications.
At the end of the day, I am watching my net worth grow substantially for my age. This is great - but I am STILL motivated to grow it more to escape the cube walls. I net 18% of my gross salary to my 401K, but I want to use my money to make it grow even more (aside from compounding and dividends).