Need advice on buying a rental house

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Need advice on buying a rental house by MLSter

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Since I would be a first time homebuyer

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I can't speak on being a landlord, but you've never owned your own house before?

I would consider doing that first. I bought my first house a year ago and I've already learned so much more than I ever knew about house maintenance and repairs, and all the work that goes into it. Maybe you come from a background where you're more familiar with what it would take to be a landlord, though. Otherwise, you might not really know what you're getting yourself into.

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rent it to my sister and her friend

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Terrible idea.

As far as buying your first rental, I would buy the house for you to live in so you can take advantage of these low rates on 30 year loans.

THEN, your life circumstances can change and you can turn it into a rental...

This ^

Do a first time home buyer loan FHA... it'll be 3.5% down...

Change your mailing address for a few months and then "move out"

If you buy a rental out of State as your first property, you are going to have a bad time my friend.

I would suggest saving up some more cash, work on the credit and revisit this idea in a year.

In the meantime, read some books on the topic, join biggerpockets.com and attend some local real estate investor meetings.

You need to do a lot and I mean a LOT of reading on this website( Biggerpockets.com ). Attend some webinars and listen to podcast. I have been plotting on rentals for a year learning strategies and ways to make the business work with the least amount of input from me. It is a great website and you can search all kinds of topics.

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Ok....

First off, what is your main goal? Are you trying to have an asset in your name, gain cash flow, build equity, help out your sister and her hot friends, fund a future primary residence, etc? You're kind of all over the place.

A few things,

Regardless if this is your first home, you can get an FHA loan. What that means, is you can put down 3.5% and the bank will fund the rest. You'll accrue PMI for the life of the loan, but that's ok. Plenty of people take out FHA loans (I have one on a house myself). You can refinance later into a conventional if you have to. You'll want to check with your local state laws though.

Now when you take out an FHA loan on a house, it's for a primary residence. In other words, I can't put down 3.5% on a house and immediately move tenants in and collect rent. You have to live in the house for at least 12 months. Again, check with YOUR local laws. Now fortunately you have a way to "beat the system" because you can have your sister move in, and have her give you cash. You'll have to tell the bank, and the lender that you're moving into it though. If she cuts you checks, they'll want to know where that $ is coming from and why. I don't know what the hell the "garden district" is, but if it isn't near you, the bank will want to know how you plan on working (assuming you have a job and a w2), and living in the house at the same time. In other words, you can't live and work in Alabama, and buy this house in Florida.

Another thing to keep in mind, the less you put down on a house in the form of a down payment, the HIGHER your mortgage will be. Your other options are a conventional loan (Lowest is 5%). If I were you and your father was cool with it, i'd use that money. Put down as much as you can. The lower your mortgage, the more $ you'll get each month from your tenants paying YOU rent.

Real Estate is a cool thing man. Appreciation, Depreciation, Cash Flow, Debt Paydown, and Inflation.

What you need to do is find a small multifamily (duplex), and put down 20%. Think about it...your mortgage could be $1000/month, but you could rent out each unit for $1000/month. You'd cash flow $1000 extra per month. Wait a couple years, and increase rent a $100 bucks. Now you're clearing $1200 cash a month. All while your tenants are paying off your debt, and your property is (hopefully) appreciating. If it appreciates 10k, you can refinance and pull out the cash and buy another property or sit on it.

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I guess I'm not really buying it with the idea of making money. I'm buying it for myself but it won't hurt to rent it while I'm not in town?

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I'm not sure you will break even renting to college students in those areas. A $300k house is going to be like $1500/month mortgage/tax/insurance. Plus maintenance and whatever you are paying the person watching the house for you.

Why not just wait until you actually move back? Presumably your credit will be improved and you will have more to put down.

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