...i was hoping to hear from more people who have rentals what their requirements are for investing in real estate.
I've only owned a rental once, for about a year. Here are some guidelines/lessons learned.
1) It's all about cash flow. For a rental to be worthwhile, you'll need to have positive cash flow.
2) Take the purchase price, subtract the down payment, then calculate your mortgage payment. Look at the mortgage calculator table that shows how much you're paying to principal, and how much to interest. Add in PMI if you have to pay this.
3) Add in maintenance costs, property taxes, repairs. Add in costs for advertising, and carrying costs that you'll have to pay regardless of whether it's rented. Add in association fees if it's a condo.
4) Determine your total cash flow (rental income, less all the expenses listed above). That's how much is subject to your income taxes, generally speaking. After income tax, how positive is the number?
5) Are you experienced in owning and maintaining your own home?
6) Do you have repair experience, or will you have to hire subcontractors for repairs.
7) How stable is the real estate market where you're buying? Is there a real risk that the property value will go down in the future? With real estate, in certain areas, at certain times, you can easily lose more than the 20% you put down.
8) Do you have enough saved up to cover 3 to 6 months of carrying expenses in the event your renter leaves, you can't rent it, or worse yet, your renter stops paying rent, but fails to leave?
9) How are the landlord vs. tenant rules in your state? Do they favor landlords or renters? I have a friend who rented a house in CA to a couple. They stopped paying rent, and after 18 months, he was finally able to get the courts to kick them out, with a Police escort. This cost him more than $60K in legal fees, plus lost rent.
10) Look at the overall rate of return on your investment. Would you have been better off making an investment in the total stock market? At least there, you can only lose your principal, not 5X that.
Anyway, there are lots of folks who make tons of money in real estate, especially over the long run. Appreciation, and eventually paying off the loan, and having an asset to sell are also positives. But then you'll have a big tax bill on the appreciated price.
Best of luck. For my first and only rental condo, my cash flow was neutral. I was hoping to sell at a profit. After my renter lost his job, I had to kick him out, use his deposit to cover the last month's missed rent, and I ended up covering the repair bills. I almost had to take money out of my 401(k) to cover expenses, and shortly after I sold, the price of the property plummeted by more than $100K. Being a landlord is not for the faint of heart.
If you can find inexpensive real estate in an area with high rental demand, that is probably your best best.
