That seems to me a good reason indeed to get licensed, sheabird. Any others worth mentioning?

I see sheabird...so it really is the potential as a second carreer that's driving you, rather than benefits you obtain from it in your capacity as landlord...make sense.

Thanks for clarifying.

Good point, sheabird. And once the word gets out that you're a no-hassles realator, you can make some pretty good $ pretty easily I bet.

BTW, does being a true realtor/licensed to sell this give you easier access to MLS? If you do get MLS listings, how to you manage to do it on the cheap (or is there no way?) On another thread, SIS and others made the point that they think this access is almost always worth what you pay. I've only done FSBOs myself, but assuming their point is valid, getting this access should save some real $.

Ok, this is really interesting. I'm a new homeowner in a 2BR place, I'm considering renting out the second room. Since this would be owner occupied, what sorts of tax breaks can I claim here? I like the idea of somebody else paying for my mortgage.

Also: how can I determine a good price to rent out at? In my area, a 1BR apt goes for about $600+. can I expect that much? or less, because of shared resources?

Thanks...

I've got a question that I hope folks don't think is too out of line here, as it affects me potentially getting into the rental property game. Yesterday, I received notification of my approval for a $200k HELO from Netbank that will pay off my current mortgage and leave me ~$55k for putting down on another house. Yesterday, I also received a counter offer from a seller that I think I can live with. It feels like things are just falling into place for this rental venture. However, I found out in the disclosure statement that the house I'm thinking about buying has aluminum wiring in it (built in late 60's). Does anybody have any opinions on how major a deal this is, and any ideas on how much it may cost to fix? I understand replacing the whole shebang with copper is going to cost several thousand dollars, which I don't think I would want to do. Anyone know how much it would cost to do an alumcop retrofit? Assuming all the outlets and fixtures currently in the home are rated for aluminum wiring, I'm not terribly concerned about what's already in place. However, I would want to install a whole house fan and a swamp cooler and I'm wondering about the ramifications of having aluminum in the house.

Thanks for your thoughts, SUCKISSTAPLES.

I'm opposed to playing fast and loose with the "owner occupied" clause--though your point is well taken about legitimately changing your mind. Might it be relatively easy for a mortgage co to claim fraud if someone did this more than once or twice in rapid succession? It's pretty easy to establish actual (if not intended) residency history from credit records, etc, and my wife would be very irked if allegations for fraud of some kind could plauibly be leveled against us (even if unwarranted).

ROFL: Aluminum wiring- my parents house has it, no probs in 40 years except after about 30 years we had to replace one main line for about $600, never any other problems...if its working dont worry

Re: Owner occupied - this is a gray area, the rule is ambigous specifaclly becuase peoples' circumtances change, and there are several ways to satisfy the requirements....keep in mind a lender has little incentive to start trouble if you are paying them every month, as they know you will likely stop paying entirely if they cause problems...whichever way you choose to go depends more on your personality, if you are willing to put up the fight if the need ever arises, like whether you try to claim every IRS deduction you can get, knowing that you may have to support your deductions if they trigger an audit...(chances of which are slim).

Re: Wife getting irked: Another hint if you are MARRIED is to (if possible) buy properties IN ONE NAME ONLY AS SEPARATE PROPERTY. This of course means you can only use the income from that 1 spouse to qualify. The advantages are that EACH of you can buy a property, and the debt wont be counted against both of you on credit reports! Example: If I am married and we both work, but I buy a house as separate property, say I have a $100,000 loan on my credit report. If I am making 30-40k a year it is difficult to qualify for ANOTHER house on top of that debt. But if I bought it as SEPARATE property, my wife has NO debt on her credit report, and can buy the house as HER separate property. This assumes a lot of things, that you both make decent money, have 0 other debts, wife wont get suspicious why you are buying as "separate", etc....It also makes a good argument for a married couple buying 2 "owner occupied" properties, that you were intending to separate for a while and live in the new house, but then reconciled and rented the property out instead....=)

Ganja: Yes I am counting the mortgage on the rental property...

Waterman: I am "fairly" sure rental property rules are NOT the same as "business activity" rules, where you must show a profit 3 out of 5 years. I believe you can show a loss (up to $25k) every year. Some rentals just do NOT make money. Hopefully the tax experts can clarify this one...or you can always send an email to the IRS from their website, they answered my questions within a week...

Suck, Can you recommend a good city to buy rental property? I live in the Bay Area and the houses here are way overpriced(IMO). Most of the homes are very old and cost at least $400k+ a pop. Where are you finding homes for $125k that rent out for $1k/month? If thats the case, I'd much rather buy 3 homes than 1 old shack.

This is a great thread and I would love to throw my .02 worth in:

As a property manager for commercial, industrial, and multifamily properties in the Seattle area for the last six years, I'll throw out a couple of observations.

First, buying houses for rental purposes is a lot more attractive in a buyers' market. This may sound obvious, but for example in the Seattle area, the average home is $285K+, and the upper end rent for a typical home is under $2k, you'll end up dropping $200-$400 per month, depending on expenses.

Because I own apartment buildings (8-20 units), the time & effort of renting out houses is not as cost-effective to me. However, if I were starting out right now I would look more toward a duplex to four plex. Two reasons: lender flexibility and more bang for your buck.


LENDER FLEXIBILITY: Lenders consider any property up to four units as a single-family residence and thus the requirements are the same as buying a house, including owner-occupying. While you will be looking at a marginally larger purchase price (and thus down payment) compared to a standard 2BR house, there are more benefits (IMO). (Any property with 5+ units requires commercial financing and thus a downpayment of 25% or greater, depending on net operating income.)

MORE BANG: On a 4-plex, for example, you have more opportunity to raise rents, minimize turnover costs, reduce downside exposure when you have one vacancy (25%) vs. a house (100%), spread expenses over more tenants, not to mention headaches are under one roof rather than running around all over town. All this potentially equates to more positive (or less negative) cashflow.

Furthermore, (IMO) apartment rents will increase faster in less time. I've find that (for example) four 1BR apartments going for $600 each will go to $700 faster than rent for a house will increase by $400. In my area, 1BR apartments are the most desireable and thus have gone up the most over the last three years.

Finally, it is my experience that these properties will accrue in value just as fast as any rental house. Whenever real estate becomes the "in" investment, as it has in Seattle over the last 4 years with all the microsoft $, the desire for small income producing properties is always very high, ESPECIALLY for properties that an investor can by without having to put 25% down.

Hope this helps,

Daniel2218

Good post, Daniel - that was very helpful. How do you find these properties? Just look in the paper?

Ty